TY - JOUR
T1 - What drives the systemic banking crises in advanced economies?
AU - Roy, Saktinil
N1 - Funding Information:
Earlier drafts of the paper were presented at the 2018 annual conference of the Canadian Economics Association in Montreal, the 2018 Australasian meeting of the Econometric Society in Auckland, the 2019 annual meeting of the Allied Social Sciences Association in Atlanta, and the 2021 Latin America Econometric Society virtual meeting. I acknowledge many valuable comments from the session participants. Special thanks are due to Sushanta Kumar Mallick, Anil Lal, Valerie Cerra, and Thibaut Duprey. Discussions with David Kemme and Valentina Galvani and suggestions from the journal editor and two anonymous referees were also helpful. My sincere thanks to Nancy Mann for her editing help in preparing the final draft of the paper. A significant part of the preliminary analysis related to this paper was conducted in 2018-2019 under the Academic Research Fund program, financed by the Research Centre of Athabasca University. The trip to Atlanta to present at the annual meeting of the Allied Social Sciences Association was partly funded by the Research Centre of Athabasca University under the Academic and Professional Development Fund program. I am grateful to the Research Centre of Athabasca University for financial assistance. The usual disclaimer applies.
Funding Information:
I confirm that the plan of the paper, collection of data, all empirical analyses, and the preparation of the current and previously submitted drafts were done solely by me. As noted in the acknowledgment section, suggestions received from conference session participants, other scholars, the journal editor, two anonymous referees, and Ms. Nancy Mann were helpful. I also gratefully acknowledge financial assistance from the Research Center of my university.
Publisher Copyright:
© 2022 Elsevier Inc.
PY - 2022/11
Y1 - 2022/11
N2 - This paper examines the drivers of post-war “systemic” banking crises in advanced economies. Using binary response models and a balanced panel of data, we show that persistently large departures from the long-run trend in housing and stock markets best predict the crises. Similar deviations in credit markets do not add to the explanatory power of the model that combines housing and stock market dynamics. Indicators capturing financial market risk perception also have high explanatory power. These findings indicate that extrapolative forecasts and neglect of tail risk drive asset market boom-bust cycles and systemic banking crises. Cycles in credit markets are driven by cycles in real-estate and stock markets before the crises. Additionally, capital inflow bonanzas fuel the stock and credit booms that spark systemic crises.
AB - This paper examines the drivers of post-war “systemic” banking crises in advanced economies. Using binary response models and a balanced panel of data, we show that persistently large departures from the long-run trend in housing and stock markets best predict the crises. Similar deviations in credit markets do not add to the explanatory power of the model that combines housing and stock market dynamics. Indicators capturing financial market risk perception also have high explanatory power. These findings indicate that extrapolative forecasts and neglect of tail risk drive asset market boom-bust cycles and systemic banking crises. Cycles in credit markets are driven by cycles in real-estate and stock markets before the crises. Additionally, capital inflow bonanzas fuel the stock and credit booms that spark systemic crises.
KW - Asset bubbles
KW - Binary response model
KW - Capital inflows
KW - Risk perception
KW - Systemic banking crises
UR - http://www.scopus.com/inward/record.url?scp=85135525959&partnerID=8YFLogxK
U2 - 10.1016/j.gfj.2022.100746
DO - 10.1016/j.gfj.2022.100746
M3 - Journal Article
AN - SCOPUS:85135525959
SN - 1044-0283
VL - 54
JO - Global Finance Journal
JF - Global Finance Journal
M1 - 100746
ER -