Does Financial Connectedness Predict Crises?

Camelia Minoiu, Chungwon Kang, V.S. Subrahmanian and Anamaria Berea

No 2013/267, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; banking crisis; classification algorithm; crisis prediction; sample crisis probability; crisis incidence data; early warning systems; systemic risk; financial networks; banking crises; network indicator; debtor country; probability threshold; Systemic crises; Global financial crisis of 2008-2009; Global (search for similar items in EconPapers)
Pages: 44
Date: 2013-12-24
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Citations: View citations in EconPapers (23)

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Journal Article: Does financial connectedness predict crises? (2015)
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