The Evidence and Impact of Financial Globalization

Chapter 34

Predictive Indicators of Financial Crises

M. Chamon and C. Crowe

International Monetary Fund, Washington, DC, USA

Outline

Survey of Early Warning Models

Early Warning Models by Investment Banks

IMF Work on Early Warning Systems

Conclusion

References

There is renewed interest in ‘early warning models’ after each wave of crises. Much of that literature was developed in the aftermath of the emerging market crises of the 1990s.¹ But interest soon began to fade, driven in part by a combination of the inherent difficulty in predicting crises (particularly timing), and a benign global environment in which fewer crises occurred. But the global financial crisis has renewed interest in this type of model.

A comprehensive survey of the early literature ...