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Systemic early warning systems for EU15 based on the 2008 crisis

Author

Listed:
  • Savas Papadopoulos

    (Bank of Greece)

  • Pantelis Stavroulias

    (Democritus University of Thrace)

  • Thomas Sager

    (University of Texas)

Abstract
Reliable forecasts of an economic crisis well in advance of its onset could permit effective preventative measures to mitigate its consequences. Using the EU15 crisis of 2008 as a template, we develop methodology that can accurately predict the crisis several quarters in advance in each country. The data for our predictions are standard, publicly available macroeconomic and market variables that are preprocessed by moving averages and filtering. The prediction models then utilize the filtered data to distinguish pre-crisis from normal quarters through standard statistical classification methodology plus a proposed new combined method, enhanced by an innovative threshold selection and goodness-of-fit measure. Empirical results are very satisfactory: Country-stratified 14-fold cross validation achieves 92.1% correct classification and 85.7% for both true positive rate and positive predictive value for the EU15 crisis of 2008. Results will be of use to policy makers, investors, and researchers who are interested in estimating the probability of a crisis as much as one and a half years in advance in order to deploy prudential policies.

Suggested Citation

  • Savas Papadopoulos & Pantelis Stavroulias & Thomas Sager, 2016. "Systemic early warning systems for EU15 based on the 2008 crisis," Working Papers 202, Bank of Greece.
    • Handle: RePEc:bog:wpaper:202
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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    Cited by:

    1. Petr Jakubik & Bogdan Gabriel Moinescu, 2023. "What is the optimal capital ratio implying a stable European banking system?," International Finance, Wiley Blackwell, vol. 26(3), pages 324-343, December.
    2. Nikos Vettas & Ioannis Giotopoulos & Evangelia Valavanioti & Svetoslav Danchev, 2016. "The determinants of new firms’ export performance," Economic Bulletin, Bank of Greece, issue 43, pages 7-17, July.
    3. Styliani Belli & Constantina Backinezos, 2016. "The transition to the new methodology for the compilation of balance of payments statistics – BPM6," Economic Bulletin, Bank of Greece, issue 43, pages 19-29, July.
    4. Savas Papadopoulos & Pantelis Stavroulias & Thomas Sager & Etti Baranoff, 2017. "A ternary-state early warning system for the European Union," Working Papers 222, Bank of Greece.
    5. repec:bog:econbl:y:2016:i:43:p:19-29 is not listed on IDEAS
    6. repec:bog:econbl:y:2016:i:43:p:31-53 is not listed on IDEAS
    7. Sophia Lazaretou, 2016. "The Greek brain drain: the new pattern of Greek emigration during the recent crisis," Economic Bulletin, Bank of Greece, issue 43, pages 31-53, July.
    8. repec:bog:econbl:y:2016:i:43:p:55-75 is not listed on IDEAS
    9. repec:bog:econbl:y:2016:i:43:p:7-17 is not listed on IDEAS
    10. Dimitrios Anastasiou & Zacharias Bragoudakis & Ioannis Malandrakis, 2019. "Non-performing loans, governance indicators and systemic liquidity risk: evidence from Greece," Working Papers 260, Bank of Greece.
    11. Faidon Kalfaoglou, 2016. "Bank recapitalisation: a necessary but not sufficient condition for resuming lending," Economic Bulletin, Bank of Greece, issue 43, pages 55-75, July.

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    More about this item

    Keywords

    Banking crisis; financial stability; macroprudential policy; classification methods; goodness-of-fit measures;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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