Systemic Financial Crises, Balance Sheets, and Model Uncertainity

Author/Editor:

Melvyn Weeks ; Mark R. Stone

Publication Date:

October 1, 2001

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper empirically examines the probability and intensity of financial crises during the 1990s with a view to informing crisis prevention and mitigation policies. The econometric analysis uses a decision-theoretic approach, rather than the more standard general-to-specific approach, to address the high degree of model uncertainty. The results affirm the importance of balance sheets in the probability and intensity of financial crises, especially corporate balance sheet stresses and foreign exchange liquidity shortfalls. Model uncertainty is a bigger problem for estimating crisis intensity compared to crisis probability.

Series:

Working Paper No. 01/162

Subject:

English

Publication Date:

October 1, 2001

ISBN/ISSN:

9781451857870/1018-5941

Stock No:

WPIEA1622001

Format:

Paper

Pages:

38

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