|Keywords:||Financial crisis; Logit; Practical forecast; Early warning system; ROC-Curve; Economics; Nationalekonomi|
|Full text PDF:||http://urn.kb.se/resolve?urn=urn:nbn:se:liu:diva-141585|
This paper aims to find macroeconomic and financial variables with ability to predict financial crises. A dataset covering 17 developed countries over the period 1870-2013 have been investigated using a logit model. We found commonly used macroeconomic variables such as terms of trade and consumption to be strong predictors within our sample. Whereas private debt and house prices are frequently found to be strong predictors, we found loans to business to be at least as good in predicting financial crises. Multivariate models are constructed as warning systems and used to analyze Sweden from 1975 up until 2016. The most efficient warning system give a strong signal before the first and moderate signal before the second crisis. In extension, regarding todays climate the warning system provides no signal, suggesting low current risk. Policy makers can benefit from observing certain variables that are found significant in this study to improve financial stability and reduce socio-economic costs.