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Could Early Warning Systems Have Helped To Predict the Sub-Prime Crisis?

Author

Listed:
  • E. Philip Davis

    (Brunel University, Uxbridge, Middlesex, UB8 3PH and NIES, e_philip_davis@msn.com)

  • Dilruba Karim

    (Brunel University, Uxbridge, Middlesex, UB8 3PH, dilruba.karim@brunel.ac.uk)

Abstract

One of the features of the sub-prime crisis, that began in August 2007, was its unexpected nature. It came as a surprise not only to most financial market participants but also in some degree to the policy community. In this context, we seek to assess whether early warning systems based on the logit and binomial tree approaches on the UK and US economies could have helped to warn about the crisis. We also consider a `check list approach' of indicators based on history. Although not all of the complementary approaches are successful, we contend that our work suggests that a broadening of approaches to macroprudential analysis is appropriate.

Suggested Citation

  • E. Philip Davis & Dilruba Karim, 2008. "Could Early Warning Systems Have Helped To Predict the Sub-Prime Crisis?," National Institute Economic Review, National Institute of Economic and Social Research, vol. 206(1), pages 35-47, October.
    • Handle: RePEc:sae:niesru:v:206:y:2008:i:1:p:35-47
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    Keywords

    Sub-prime crisis; early warning; financial instability; macroprudential analysis; JEL Classifications: E44; E58;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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