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Early Warning Indicators for Systemic Banking Crises: Household Debt and Property Prices

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  • Abd Samad, Khairunnisa

    (Faculty of Business Management Universiti Teknologi MARA (UiTM) Melaka Kampus Alor Gajah 78000 Lendu Melaka MALAYSIA)

  • Mohd Daud, Siti Nurazira

    (Faculty of Economics, Finance and Banking UUM College of Business Universiti Utara Malaysia Sintok 06010 Bukit Kayu Hitam Kedah MALAYSIA)

  • Mohd Dali, Nuradli Ridzwan Shah

    (Faculty of Economics and Muamalat Universiti Sains Islam Malaysia (USIM) Bandar Baru Nilai 71800 Nilai Negeri Sembilan MALAYSIA)

Abstract

The 2008 financial crisis was the result of escalating house prices and a hasty increase in household debt. In a sample of 41 advanced and emerging countries, this paper employs a logit estimation model to examine the role of household debt and house price as indicators of systemic banking for the period of 1980 until 2018. The results confirm that a high growth in household debt and house price increase enhances the probability for crises to erupt. While this is a consistent evidence for advanced economies, an observation of emerging economies suggests that only a change in household debt and not a change in house prices may cause banking crises to erupt. Policymakers can thus design predictive EWS models based on the surge in household debt and house prices prior to the crises which would lessen, if not alleviate, the effect of upcoming economic shocks by monitoring the macroeconomic changes.

Suggested Citation

  • Abd Samad, Khairunnisa & Mohd Daud, Siti Nurazira & Mohd Dali, Nuradli Ridzwan Shah, 2020. "Early Warning Indicators for Systemic Banking Crises: Household Debt and Property Prices," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 54(1), pages 121-134.
    • Handle: RePEc:ukm:jlekon:v:54:y:2020:i:1:p:121-134
    DOI: http://dx.doi.org/10.17576/JEM-2020-5401-9
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