Σύνοψη

SYSTEMIC EARLY WARNING SYSTEMS FOR EU15 BASED ON THE 2008 CRISIS

Savas Papadopoulos

Bank of Greece

Pantelis Stavroulias

Democritus University of Thrace

Thomas Sager

University of Texas

Abstract

Reliable forecasts of an economic crisis well in advance of its onset could permit effective preventative measures to mitigate its consequences. Using the EU15 crisis of 2008 as a template, we develop methodology that can accurately predict the crisis several quarters in advance in each country. The data for our predictions are standard, publicly available macroeconomic and market variables that are preprocessed by moving averages and filtering. The prediction models then utilize the filtered data to distinguish pre-crisis from normal quarters through standard statistical classification methodology plus a proposed new combined method, enhanced by an innovative threshold selection and goodness-of-fit measure. Empirical results are very satisfactory: Country-stratified 14-fold cross validation achieves 92.1% correct classification and 85.7% for both true positive rate and positive predictive value for the EU15 crisis of 2008. Results will be of use to policy makers, investors, and researchers who are interested in estimating the probability of a crisis as much as one and a half years in advance in order to deploy prudential policies.

Keywords: Banking crisis; financial stability; macroprudential policy; classification methods; goodness-of-fit measures. 

JEL-classifcations: C53; E58; G28

Acknowledgments: This research has been co‐financed by the European Union (European Social Fund – ESF) and Greek national funds through the Operational Program "Education and Lifelong Learning" of the National Strategic Reference Framework (NSRF) ‐ Research Funding Program: THALES. Investing in knowledge society through the European Social Fund.

Correspondence:

Savas Papadopoulos

Bank of Greece,

Department of Financial Stability

10250 Athens, Greece

Tel.:0030-210-3205106

Email: sapapa@bankofgreece.gr