NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Are Leading Indicators of Financial Crises Useful for Assessing Country Vulnerability? Evidence from the 2008-09 Global Crisis

Jeffrey A. Frankel, George Saravelos

NBER Working Paper No. 16047
Issued in June 2010
NBER Program(s):   IFM

This paper investigates whether leading indicators can help explain the cross-country incidence of the 2008-09 financial crisis. Rather than looking for indicators with specific relevance to the current crisis, the selection of variables is driven by an extensive review of more than eighty papers from the previous literature on early warning indicators. The review suggests that central bank reserves and past movements in the real exchange rate are the two leading indicators that have proven the most useful in explaining crisis incidence across different countries and crises in the past. For the 2008-09 crisis, we use six different variables to measure crisis incidence: drops in GDP and industrial production, currency depreciation, stock market performance, reserve losses, or participation in an IMF program. We find that the level of reserves in 2007 appears as a consistent and statistically significant leading indicator of the current crisis, in line with the conclusions of the earlier literature. In addition to reserves, recent real appreciation is a statistically significant predictor of devaluation and of a measure of exchange market pressure during the current crisis. That our data on the crisis period include the first quarter of 2009 may explain why we find stronger results than earlier papers such as Obstfeld, Shambaugh and Taylor (2009, 2010) and Rose and Spiegel (2009a,b).

download in pdf format
   (434 K)

email paper

This paper is available as PDF (434 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w16047

Published: “Are Leading Indicators of Financial Crises Useful for Assessing Country Vulnerability? Evidence from the 2008 - 09 Global C ris is,” with George Saravelos, Journal of International Economics 87 , no.2, July 2012 : pp. 216 - 2 31. HKS RWP 11 - 024. NBER WP 16047 .

Users who downloaded this paper also downloaded these:
Taylor w18606 External Imbalances and Financial Crises
Radelet and Sachs The Onset of the East Asian Financial Crisis
Gourinchas and Obstfeld w17252 Stories of the Twentieth Century for the Twenty-First
Aït-Sahalia, Andritzky, Jobst, Nowak, and Tamirisa w15809 Market Response to Policy Initiatives during the Global Financial Crisis
Hatzius, Hooper, Mishkin, Schoenholtz, and Watson w16150 Financial Conditions Indexes: A Fresh Look after the Financial Crisis
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us