Data mining of resilience indicators

Abstract

In recent years, the Asia-Pacific region has experienced several financial setbacks, including speculative attacks in 1998 and the SARS outbreak in 2003. Financial stresses of this nature are unanticipated, and not all of the dangers can be predicted by the examination of market information and macroeconomic indicators. The Early Warning System (EWS) that has been adopted by the International Monetary Fund may not be able to predict future financial crises for all possible scenarios, because shocks come in many different forms. To supplement the EWS, this paper proposes a data mining framework to measure the resilience of an economy. The resilience framework does not predict a crisis, but rather assesses the current state of health of an economy and its ability to withstand a financial shock should one occur. The framework is based on a feedback system consisting of two stages. The first stage assigns a resilience score to each economy based on a fuzzy logic scoring scheme that is built on the ambiguous reasoning of experts. The second stage uses the classification tree approach to estimate thresholds for each economic indicator, and examines the quality of the fuzzy score. The result from the second stage is then passed back to the first stage as feedback. The final result is obtained when the feedback system reaches its equilibrium state. The proposed resilience framework is applied to the external-sector and the public-sector economies of several countries to illustrate its applicability.