Probability Of Financial Crisis Research Articles

Market power, inequality, and financial instability

Over the last four decades, the U.S. economy has experienced a few secular trends: declining labor share, increasing profit share, widening income and wealth inequalities, rising household sector leverage and associated financial instability, manifested in an increase in the probability of financial crises. This paper provides a unifying framework for explaining these trends based on a rise in firm market power in both product and labor markets. We develop a general equilibrium model and show that the rise in firm market power over the last few decades can generate all of these secular trends.

Macroprudential Policy and Asset Liquidity

This paper develops a dynamic model to study optimal liquidity regulations for multiple assets that differ in liquidity. I show that optimal macroprudential policies are affected by asset liquidity and the multi-asset structure. Lower asset liquidity amplifies declines in asset prices and tightens the collateral constraint during financial crises, raising macroprudential taxes on debt. With multiple assets, the marginal benefit of investing in one asset is affected by cross-price elasticities of all assets, depending on trading positions and the collateral constraint's tightness. The optimal policy in the multi-asset model can differ from those in standard one-asset models in size and sign. Quantitatively, optimal macroprudential policies favor liquid assets and reduce borrowing. The policy reduces the probability of financial crises from 8% to zero and increases welfare by 1.2%. Finally, I analyze and quantify the current Basel III reform, which increases agents' liquid holdings and decreases the probability of crises. However, the policy reduces welfare, as agents overborrow and overinvest in liquid assets.

Discriminant analysis during the financial security benchmarking of PJSC "Kompleksne pidpryiemstvo shyrokoprofilnoho budivnytstva-2"

The authors in the research article consider benchmarking as an effective management tool. This method usually is used in marketing, marketing research, but benchmarking can also be used to increase the economic efficiency of financial management of the company. The article identifies the principles and peculiarities of benchmarking analysis, the authors propose new stages of benchmarking on the basis of generalization of approaches of different researchers for this issue.
 Researchers use methods such as cluster analysis, factor analysis, component analysis, regression analysis and discriminant analysis, because there is a need to divide the objects of research into separate groups according to the main strategic priorities.
 The authors choose discriminant analysis, which was performed using MS Excel software. Benchmarking analysis of financial security was conducted on three indicators - coverage ratio (from the group of liquidity indicators), concentration coefficient of equity (from the group of financial stability indicators)and ROS (from the group of profitability indicators). The sample of competing companies was formed, consisting of 15 joint-stock companies of Kyiv region and Kyiv with the main activity - construction of residential and non-residential buildings. 
 Two sub-samples have been identified, each containing 4 objects: the first group includes the best companies, where the threat of financial crisis is not high, while the second group includes the worst companies with inefficient financial management. Subsamples formation criterias are the maximum and minimum of the average value of three indicators. 
 Efficiency of financial management, probability of financial crisis and getting of benchmarking companies in a particular group is determined according to the discriminant analysis with the help of an integrated indicator.

Financial liberalisation, financial development and financial crises in SADC countries

PurposeThe impact of financial reforms and financial development on an economy has received considerable attention over the recent past. This paper aims to investigate whether financial liberalisation and financial development increase the likelihood financial crises in Southern African development community (SADC) countries.Design/methodology/approachDue to the binary nature of the dependent variable, the logit model is used for the analysis using data for the period 1990 to 2015.FindingsThe results showed that financial liberalisation captured by real interest rates reduces the likelihood of financial crises. Furthermore, regulatory quality strengthens this reductive effect of financial liberalisation on the probability of financial crises. On the other hand, financial development represented by bank credit increases the incidence of financial crises. The results also suggest that financial liberalisation may increase the likelihood of financial crises indirectly through financial development.Research limitations/implicationsThe study recommends that a sound regulatory and supervisory framework be established as well as institutional quality raised to curb the effect of financial development on the incidence of financial crises.Originality/valueThere is scant evidence on the role that financial liberalisation and financial development play in the incidence of financial crises in the SADC. This study incorporates the effect of institutional quality in the analysis which has been neglected by most studies on financial reforms in SADC countries. A number of recent studies in SADC countries conclude that financial development resulting from financial reforms, may hinder economic growth. Therefore, this study sheds light on this negative relationship.

Predicting Financial Crises: The Search for the Most Telling Red Flag in the Economy

Canada is often cited as having worryingly high household debt-to-GDP and debt-to-disposable-income ratios, but the assets and net worth of Canadian households have grown more quickly than their debt. Using a new financial vulnerabilities barometer, we show that the inclusion of household debt servicing considerably improves the barometer’s ability to track financial vulnerability, particularly in advance of recessions. In contrast to the Bank of Canada’s financial vulnerability barometer, our index declines sharply after the Great Recession and indicates that financial risks are currently quite low. By focusing on debt servicing (the debt-service-to-disposable-income ratio) rather than debt, the barometer appears to yield fewer false positives than the Bank of Canada’s barometer. Further empirical analysis indicates that debt servicing is an improvement over traditional credit measures in predicting future economic growth and financial crises. We show that the relationship between debt servicing and both financial crises and economic growth is statistically significant. More specifically, we find that increases in new borrowing lead initially to a mild increase in economic activity and a significant reduction in the probability of financial crises, but they subsequently lead to a gradual increase in households’ debt service burden (the sum of principal and interest payments on their outstanding debts), expressed as a ratio of disposable income, which has a significantly negative impact on economic activity and a significantly positive impact on the probability of financial crises. Focusing on debt servicing provides a potential clue as to why we have not seen the type of market correction that has been repeatedly predicted for the Canadian housing market – namely, the fact that over the last 25 years the debt-service-to-disposable-income ratio has largely been flat, except for a mild recent increase, and (not coincidentally) an increase before the 2008 financial crisis. Our findings have policy implications for both the conduct of monetary policy and financial sector regulators. An immediate policy conclusion is that empirical models of financial system vulnerabilities should put more weight on the evolution of debt-service ratios and other indicators related to debt servicing. Furthermore, if financial stability is taken into consideration in the setting of monetary policy, central banks must be concerned with the trade-off between the short-run positive effects of increased borrowing on output and inflation and the potentially negative long-run effects that work their way through the debt-service channel. Lastly, regulators concerned with the housing market and overall financial stability should look beyond traditional credit-to-GDP measures, which were always going to increase in a low interest rate environment, and closely monitor the behaviour of debt servicing.

Debt and Financial Crises

Emerging market and developing economies have experienced recurrent episodes of rapid debt accumulation over the past fifty years. This paper examines the consequences of debt accumulation using a three-pronged approach: an event study of debt accumulation episodes in 100 emerging market and developing economies since 1970; a series of econometric models examining the linkages between debt and the probability of financial crises; and a set of case studies of rapid debt buildup that ended in crises. The paper reports four main results. First, episodes of debt accumulation are common, with more than 500 episodes occurring since 1970. Second, around half of these episodes were associated with financial crises which typically had worse economic outcomes than those without crises— after 8 years output per capita was typically 6-10 percent lower and investment 15-22 percent weaker in crisis episodes. Third, a rapid buildup of debt, whether public or private, increased the likelihood of a financial crisis, as did a larger share of short-term external debt, higher debt service, and lower reserves cover. Fourth, countries that experienced financial crises frequently employed combinations of unsustainable fiscal, monetary and financial sector policies, and often suffered from structural and institutional weaknesses.

Systemic Financial Risk Early Warning System Based on House Price Fluctuation Factor

In today's economic globalization, financial security is threatened by a variety of risk factors, of which the real estate market is a particularly important factor in these risk factors. This paper selects asset bubble risk index, macroeconomic risk indicator, currency market risk indicator and foreign exchange market risk indicator to establish a systemic financial risk early warning indicator system based on housing price fluctuation risk factor. The study found that the average annual sales growth rate of commercial housing and the real effective exchange rate are positively correlated with the probability of financial crisis; GDP growth rate, CPI year-on-year growth rate, M2 growth rate, export growth rate are negative related with the probability of financial crisis.

Learning from History: Volatility and Financial Crises

We study the effects of volatility on the probability of financial crises by constructing a cross-country database spanning 211 years. We find that volatility is not a significant predictor of crises whereas unexpected high and low volatilities are. Low volatility leads to banking crises and both high and low volatilities make stock market crises more likely, while volatility in any form has little impact on currency crises. The volatility-crisis relationship becomes stronger when financial markets are more prominent and less regulated. Finally, low-risk environments are conducive to greater buildup of risk-taking, providing empirical support for the Minsky hypothesis.

Learning from History: Volatility and Financial Crises

We study the effects of volatility on the probability of financial crises by constructing a cross-country database spanning 211 years. We find that volatility is not a significant predictor of crises whereas unexpected high and low volatilities are. Low volatility leads to banking crises and both high and low volatilities make stock market crises more likely, while volatility in any form has little impact on currency crises. The volatility-crisis relationship becomes stronger when financial markets are more prominent and less regulated. Finally, low-risk environments are conducive to greater buildup of risk-taking, providing empirical support for the Minsky hypothesis.

Meramal Krisis Keuangan di Indonesia

The policy makers in Indonesia is more Ad-hoc and myopic (the radar far) to make policy. With various models and methods can be made a prediction or forecast about the financial and banking crisis, and even can diagnose the health of can economy. The crisis that can accur in various parts of the world causing expert 1o try to find the cause, a common pattern (stylized facts) that is experts to developed a method to detect the financial crisis, it can even be used to see in the future economy performance. Crisis in Indonesia that occurred in 1971-1975 as the sample to predict a crisis of Indonesia in 1997 whose results were in general quite.There are several models developed to predict the financial crisis imn Indonesia include: parametric models/econometric models and non parametric, such as signals, the model logitlprobit, hybrid model that includes macro and micro prudential and artificial neural network model. Each using a similar indicator, only the number of indicators (its nodes) are indeed different.From the various models and methods developed, has the performance and results of analysis or early indicators are almost the same/similar and significant at 5% alpha level. It's just an early indicator of the difference and the probability that a crisis will occur when using a forecasting and prediction in outside sample. The performance of each model is adequate in terms of occurancy in predicting the probability of financial crisis in Indonesia. Early indicators are an important contribution in predicting the probability of financial crisis in Indonesia are: real exchange rate, fiscal deficit. the credit ratio to Gross Domestic Product (GOP, world oil prices, growth in export and import, government consumption, domestic Imterest rate spread is the interest rate "The Fed" (The Federal Reserve The Central Bank of The USA).

Corporate Governance and Financial Crises

This paper focuses on answering the three following questions: (1) Does corporate governance matter in financial crisis? And how does it matter? (2) Does the effect of corporate governance level on crisis in developing countries differ from that in developed countries? Why? (3). Does weak corporate governance make countries more vulnerable during global financial crisis? Theoretically, the contribution of corporate governance to financial crises is through two channels. The first channel is that weak corporate governance increases aggressive risk taking of financial institutions and the collapse of latter may cause a crisis (Tarraf (2011)). The second explanation is proposed by Johnson and all (2000) that weak corporate governance can cause an increase in net outflow of capital since the foreign investors lose their confidence. As a result, depreciation of exchange rate increases. Using the macroeconomic data and Worldwide Governance Indicators of 14 countries from 1996-2014, I find that besides economic fundamentals, better corporate governance reduces significantly the probability of financial crises, especially in developing countries and Asian ones. This effect remains unchanged in the global crisis period for the developing countries and the Asian ones while it seems to be smaller for the developed ones. However, the effect of corporate governance on the relative change of exchange rate is limited. Corporate governance indicators only influence the exchange rate in developing countries and this effect still remains during global financial crisis.

Process Improvement Study of BP Neural Networks Model for Financial Crisis Prediction Based on Chinese Real Estate Listed Enterprises

This paper tries to put BP neural networks of artificial intelligence into financial crisis prediction. When a company is degraded from “Normal” to “ST” or “*ST” by China Securities Regulatory Commission, financial crisis happened. We find out 51 real estate developments listed companies which were degraded from 2003 to 2012 in China. By analyzing the data of these companies three years ago, we calculate the probability of financial crisis. Besides, we choose 669 normal state companies as matching samples in the same period, same industry, and similar size. We find that it is better to apply one specific calculation method of financial ratio into BP neural networks model for prediction than to use all of them. And accuracy of prediction about setting one hidden layer is better than two layers.

Taxation, Bank Leverage, and Financial Crises

That most corporate tax systems favor debt over equity finance is now widely recognized as, potentially, amplifying risks to financial stability. This paper makes a first attempt to explore, empirically, the link between this tax bias and the probability of financial crisis. It finds that greater tax bias is associated with significantly higher aggregate bank leverage, and that this in turn is associated with a significantly greater chance of crisis. The implication is that tax bias makes crises much more likely, and, conversely, that the welfare gains from policies to alleviate it can be substantial far greater than previous studies, which have ignored financial stability considerations, suggest.

Taxation, Bank Leverage, and Financial Crises

That most corporate tax systems favor debt over equity finance is now widely recognized as, potentially, amplifying risks to financial stability. This paper makes a first attempt to explore, empirically, the link between this tax bias and the probability of financial crisis. It finds that greater tax bias is associated with significantly higher aggregate bank leverage, and that this in turn is associated with a significantly greater chance of crisis. The implication is that tax bias makes crises much more likely, and, conversely, that the welfare gains from policies to alleviate it can be substantial—far greater than previous studies, which have ignored financial stability considerations, suggest.

Integracja rynków finansowych w Unii Europejskiej

The integration of financial markets is one of the stages of economic integration. The trends for the integration of financial markets is observed both on a global scale, as well as its various regions. The integration of financial markets may occurs as a result of actions by the authorities, but also by the international free market processes – globalization. Speaking about the integration of EU financial markets, we mean creating opportunities for free movement of capital and financial services in the EU and the single currency. As a result of increase in the financial integration process in Europe the value of the flow of capital between countries has significantly increased. With the progress of economic integration in the EU, the EU as a whole has become a stronger business partner and was able to invest more beyond its borders, as well as more investments flowed from the third countries. The integration of financial markets through greater development of the financial markets is leading to faster economic growth. It can bring many benefits, but also risks. Benefits should be seen in the possibility to boost the GDP growth, the risks in the existence of increasingly stronger links between national markets and intermediaries acting on that markets. A particularly important issue is the contagion effect. Additionally, in case of institutional mismatches on the side of economic policy, financial integration can also have negative effects on the economy, such as greater probability of financial crisis and economic recession, because the price for increased integration of financial markets is an increase in the risk of financial crises. Economic growth stimulated by the development of financial markets should be accompanied by proper regulation of markets to prevent future crisis. However, it must be also remembered that the growth of the institutions may limit the development of markets.

Does financial integration make banks more vulnerable? Regulation, foreign owned banks, and the lender-of-last resort

We describe a simple model in which banks’ prudential efforts and public regulation can reduce the probability of bankruptcy. Focusing on the European example, we contrast the national case with an integrated banking market and find that banks will exert, and public regulators will demand, greater prudential effort to monitor their bank’s activities. Thus, financial integration may increase voluntary prudential behavior by banks, avoid a regulatory “race to the bottom,” and improve the soundness of the financial system. Along similar lines, we show that the absence of a dedicated lender of last resort within the euro area can reduce the probability of financial crisis. Despite these findings, the overall level of regulatory activity may remain suboptimal from a European perspective. We also discuss incentives for European banks to organize their foreign holdings in branches or subsidiaries.