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Journal of Banking Regulation

, Volume 20, Issue 3, pp 226–244 | Cite as

Systemic early warning systems for EU14 based on the 2008 crisis: proposed estimation and model assessment for classification forecasting

  • Savas PapadopoulosEmail author
  • Pantelis Stavroulias
  • Thomas Sager
Original Article
  • 9 Downloads

Abstract

Reliable forecasts of an economic crisis well in advance of its onset could permit effective preventative measures to mitigate its consequences and become a valuable tool for banking regulation and macroprudential policy. Using the EU14 crisis of 2007–2008 as a template, we develop methodology that can accurately predict a banking 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 one proposed method, enhanced by an innovative goodness-of-fit measure used in the estimation and in the threshold selection. Empirical results are quite satisfactory and can be used by 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. Implications to bank regulatory policy are discussed.

Keywords

Banking crisis Macroprudential policy Classification methods Decision trees and C5.0 Goodness-of-fit measures 

Notes

Acknowledgements

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.

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Copyright information

© Springer Nature Limited 2018

Authors and Affiliations

  • Savas Papadopoulos
    • 1
    Email author
  • Pantelis Stavroulias
    • 2
  • Thomas Sager
    • 3
  1. 1.Department of Financial StabilityBank of GreeceAthensGreece
  2. 2.Economics DepartmentDemocritus University of ThraceKomotiniGreece
  3. 3.Department of IROM, B6500University of Texas at AustinAustinUSA

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