Does Financial Connectedness Predict Crises?

Author/Editor:

Camelia Minoiu ; Chanhyun Kang ; V.S. Subrahmanian ; Anamaria Berea

Publication Date:

December 24, 2013

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:

The global financial crisis has reignited interest in models of crisis prediction. It has also raised the question whether financial connectedness - a possible source of systemic risk - can serve as an early warning indicator of crises. In this paper we examine the ability of connectedness in the global network of financial linkages to predict systemic banking crises. Our results indicate that increases in a country's financial interconnectedness and decreases in its neighbors' connectedness are associated with a higher probability of banking crises after controlling for macroeconomic fundamentals.

Series:

Working Paper No. 13/267

Subject:

Banking crises Banking crisis Early warning systems Economic integration Financial crisis Financial risk Global Financial Crisis 2008-2009 Systemic risk

English

Publication Date:

December 24, 2013

ISBN/ISSN:

9781475554250/1018-5941

Stock No:

WPIEA2013267

Format:

Paper

Pages:

44

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