Hostname: page-component-cd9895bd7-jn8rn Total loading time: 0 Render date: 2024-12-27T08:19:08.805Z Has data issue: false hasContentIssue false
  • English
  • Français

Identifying economic crises: insights from history

Published online by Cambridge University Press:  19 May 2015

Xavier De Scheemaekere ,
Kim Oosterlinck  and
Ariane Szafarz
Xavier De Scheemaekere
Affiliation:
Université Libre de Bruxelles
Kim Oosterlinck*
Affiliation:
Université Libre de Bruxelles
Ariane Szafarz
Affiliation:
Université Libre de Bruxelles
*
K. Oosterlinck, corresponding author: Université Libre de Bruxelles, SBS-EM, CEB, koosterl@ulb.ac.be
Get access Rights & Permissions [Opens in a new window]

Abstract

Economists have been blamed for their inability to forecast and address crises. This article attributes this inability to intertwined factors: the lack of a coherent definition of crises, the reference-class problem, the lack of imagination regarding the nature of future crises and sample-selection biases. Specifically, economists tend to adapt their views on crises to recent episodes, and omit averted and potential crises. Threshold-based definitions of crises run the risk of being ad hoc. Using historical examples, this article highlights some epistemological shortcomings of the current approach.

Keywords

economic crisiseconomic historysingle-case probabilityepistemology

JEL classification

G01: Financial Crises G17: Financial Forecasting and Simulation B40: General N00: General
Type
The past mirror: notes, surveys, debates
Information
Financial History Review , Volume 22 , Issue 1 , April 2015 , pp. 1 - 18
Check for updates
Copyright
Copyright © European Association for Banking and Financial History e.V. 2015 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Accominotti, O., Flandreau, M. and Rezzik, R. (2011). The spread of empire: Clio and the measurement of colonial borrowing costs. Economic History Review, 64, pp. 385–407.CrossRefGoogle Scholar
Aftalion, F. (1996). L'économie de la Révolution française. Paris: PUF, Collection Quadrige.Google Scholar
Allen, W. A. and Moessner, R. (2012). The international propagation of the financial crisis of 2008 and a comparison with 1931. Financial History Review, 19, pp. 123–47.CrossRefGoogle Scholar
Barkbu, B., Eichengreen, B. and Mody, A. (2012). Financial crises and the multilateral response: what the historical record shows Journal of International Economics, 88, pp. 422–35.CrossRefGoogle Scholar
Batisty, V. and Domotor, Z. (2008). Chaos, complexity, and indeterminism. In Ciprut, J. V. (ed.), Indeterminacy: The Mapped, the Navigable, and the Uncharted, Cambridge, MA: MIT Press.Google Scholar
Bauman, P. (2005). Three doors, two players and single-case probabilities. American Philosophical Quarterly, 42, pp. 71–9.Google Scholar
Bauman, P. (2008). Single-case probabilities and the case of Monty Hall: Levy's view. Synthese, 162, pp. 265–73.CrossRefGoogle Scholar
Berg, A. and Pattillo, C. (1999). Are currency crises predictable? A test. IMF Staff Papers, 46, pp. 107–38.CrossRefGoogle Scholar
Bernal, O., Oosterlinck, K. and Szafarz, A. (2010). Observing bailout expectations during a total eclipse of the sun. Journal of International Money and Finance, 29, pp. 1193–205.CrossRefGoogle Scholar
Briere, M., Chapelle, A. and Szafarz, A. (2012). No contagion, only globalization and flight to quality. Journal of International Money and Finance, 31, pp. 1729–44.CrossRefGoogle Scholar
Briere, M. and Drut, B. (2009). The revenge of purchasing power parity on carry trades during crises. CEB Working Paper no. 09/013.Google Scholar
Brown, W. O. and Burdekin, R. C. K. (2000). Turning points in the US civil war: a British perspective. Journal of Economic History, 60, pp. 216–31.CrossRefGoogle Scholar
Brown, W. O. and Burdekin, R. C. K. (2002). German debt traded in London during World War II: a British perspective on Hitler. Economica, 69, pp. 655–69.CrossRefGoogle Scholar
Burnside, C., Eichenbaum, M., Kleshchelski, I. and Rebelo, S. (2011). Do peso problems explain the returns to the carry trade? Review of Financial Studies, 24, pp. 853–91.CrossRefGoogle Scholar
Candelon, B., Dumitrescu, E.-I. and Hurlin, C. (2012). How to evaluate an early-warning system: toward a unified statistical framework for assessing financial crises forecasting methods. IMF Economic Review, 60, pp. 75–113.CrossRefGoogle Scholar
Chang, R. and Velasco, A. (2001). A model of financial crises in emerging markets. Quarterly Journal of Economics, 116, pp. 489–517.CrossRefGoogle Scholar
Davies, W. and Mcgoey, L. (2012). Rationalities of ignorance: on financial crisis and the ambivalence of neo-liberal epistemology. Economy and Society, 41, pp. 64–83.CrossRefGoogle Scholar
De Scheemaekere, X. (2009). The epistemology of modern finance. Journal of Philosophical Economics, 2, pp. 99–120.Google Scholar
De Scheemaekere, X. and Szafarz, A. (2009). The special status of mathematical probability: a historical sketch. Epistemologia, 32, pp. 91–110.Google Scholar
Drelichman, M. and Voth, H.-J. (2011). Serial defaults, serial profits: returns to sovereign lending in Habsburg Spain, 1566–1600. Explorations in Economic History, 48, pp. 1–19.CrossRefGoogle Scholar
Eagle, A. (2004). Twenty-one arguments against propensity analyses of probability. Erkenntnis, 60, pp. 371–416.CrossRefGoogle Scholar
Eaton, J. and Fernandez, R. (1995). Sovereign debt. NBER Working Paper 5131.CrossRefGoogle Scholar
Eichengreen, B., Haussmann, R. and Panizza, U. (2005). The pain of original sin. In Eichengreen, B. and Hausmann, R. (eds.), Other People's Money: Debt Denomination and Financial Instability in Emerging Market Economies. Chicago: University of Chicago Press.CrossRefGoogle Scholar
Eichengreen, B. and Portes, R. (1987). The anatomy of financial crises. NBER Working Paper 2126.CrossRefGoogle Scholar
Ferguson, N. and Schularick, M. (2006). The empire effect: the determinants of country risk in the first age of globalization, 1880–1913. Journal of Economic History, 66, pp. 283–312.CrossRefGoogle Scholar
Flandreau, M. (2012). The vanishing banker. Financial History Review, 19, pp. 1–19.CrossRefGoogle Scholar
Frankel, J. and Saravelos, G. (2012). Can leading indicators assess country vulnerability? Evidence from the 2008–09 global financial crisis. Journal of International Economics, 87, pp. 216–31.CrossRefGoogle Scholar
Franz, W. (2011). Fear mongering. ZEW News, 12.Google Scholar
Frey, B. and Kucher, M. (2000). History as reflected in capital markets: the case of World War II. Journal of Economic History, 60, pp. 468–96.CrossRefGoogle Scholar
Frey, B. and Waldenström, D. (2004). Markets work in war: World War II reflected in Zurich and Stockholm bond markets. Financial History Review, 11, pp. 51–67.CrossRefGoogle Scholar
Frey, B. and Waldenström, D. (2007). Using financial markets to analyze history: the case of the Second World War. Historical Social Research, 32, pp. 330–50.Google Scholar
Friedman, M. (1974). Explanation and scientific understanding. Journal of Philosophy, 71, pp. 5–19.CrossRefGoogle Scholar
Hájek, A. (1997). ‘Mises redux’ – redux: fifteen arguments against finite frequentism. Erkenntnis, 45, pp. 209–27.CrossRefGoogle Scholar
Hájek, A. (2007). The reference class problem is your problem too. Synthese, 156, pp. 563–85.CrossRefGoogle Scholar
Jorion, P. and Goetzmann, W. (1999). Global stock markets in the twentieth century. Journal of Finance, 54, pp. 953–80.CrossRefGoogle Scholar
Kaminsky, G., Lizondo, S., and Reinhart, C. M. (1998). Leading indicators of currency crises. IMF Staff Papers, 45, pp. 1–48.CrossRefGoogle Scholar
Knight, F. H. (1921). Risk, Uncertainty and Profit. Boston and New York: Houghton Mifflin Company.Google Scholar
Kocherlakota, N. R. (1996). The equity premium: it's still a puzzle. Journal of Economic Literature, 34, pp. 42–71.Google Scholar
Krasker, W. S. (1980). The ‘peso problem’ in testing the efficiency of forward exchange markets. Journal of Monetary Economics, 6, pp. 269–76.CrossRefGoogle Scholar
Lerner, E. (1954). The monetary and fiscal programs of the Confederate government, 1861–1865. Journal of Political Economy, 62, pp. 506–22.CrossRefGoogle Scholar
Levy, K. (2007). Bauman on the Monty Hall problem and single-case probabilities. Synthese, 158, pp. 139–51.CrossRefGoogle Scholar
Lo, A. W. (2012). Reading about the financial crisis: a twenty-one-book review. Journal of Economic Literature, 50, pp. 151–78.CrossRefGoogle Scholar
Mehra, R. and Prescott, E. C. (1985). The equity premium: a puzzle. Journal of Monetary Economics, 15, pp. 145–61.CrossRefGoogle Scholar
Millstein, R. L. (2003). Interpretations of probability in evolutionary theory. Philosophy of Science, 70, pp. 1317–28.CrossRefGoogle Scholar
Milne, P. (1986). Can there be a realist single-case interpretation of probability? Erkenntnis, 25, pp. 129–32.CrossRefGoogle Scholar
Morgan, M. S. (1990). The History of Econometrics Ideas. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
Obstfeld, M. and Taylor, A. M. (2003). Sovereign risk, credibility and the gold standard: 1870–1913 versus 1925–1931. Economic Journal, 113, pp. 241–75.CrossRefGoogle Scholar
Oosterlinck, K. (2003). The bond market and the legitimacy of Vichy France. Explorations in Economic History, 40, pp. 327–45.CrossRefGoogle Scholar
Oosterlinck, K. and Landon-Lane, J. (2006). Hope springs eternal: French bondholders and the Soviet Repudiation (1915–1919). Review of Finance, 10, pp. 507–35.CrossRefGoogle Scholar
Pierce, A. (2008). The Queen asks why no one saw the credit crunch coming. The Telegraph online. www.telegraph.co.uk/news/uknews/theroyalfamily/3386353/The-Queen-asks-why-no-one-saw-the-credit-crunch-coming.htmlGoogle Scholar
Portes, R. (1999). An analysis of financial crisis: Lessons for the international financial system. In Hunter, W. C., Kaufman, G. G. and Krueger, T. H. (eds.), The Asian Financial Crisis: Origins, Implications, and Solutions. New York: Springer Science and Business Media New York.Google Scholar
Radelet, S. and Sachs, J. (1998). The East Asian financial crisis: diagnosis, remedies, prospects. Brookings Papers on Economic Activity, 1, pp. 1–74.CrossRefGoogle Scholar
Raffalovitch, A. (1931). L'abominable vénalité de la presse, d'après les documents des archives russes (1897–1917). Paris: Librairie du Travail.Google Scholar
Reichenbach, H. ([1935] 1978). The Theory of Probability. In Reichenbach, M. and Cohen, R. S. (eds.), Hans Reichenbach, Selected Writings, 1909–1953, vol. 2. Dordrecht: Reidel.Google Scholar
Reinhart, C. and RogofF, K. (2004). The modern history of exchange rate arrangements: a reinterpretation. Quarterly Journal of Economics, 119, pp. 1–48.CrossRefGoogle Scholar
Reinhart, C. and RogofF, K. (2011). From financial crash to debt crisis, American Economic Review, 101, pp. 1676–706.CrossRefGoogle Scholar
Scardovi, I. (1988). Ambiguous uses of probability. In Agazzi, E. (ed.), Probability in the Sciences. Dordrecht: Kluwer.Google Scholar
Schularick, M. and Taylor, A. M. (2012). Credit booms gone bust: monetary policy, leverage cycles, and financial crises, 1870–2008. American Economic Review, 102, pp. 1029–61.CrossRefGoogle Scholar
Settle, T. (1977). Popper versus Peirce on the probability of single cases. British Journal for the Philosophy of Science, 28, pp. 177–80.CrossRefGoogle Scholar
Sill, K. (2000). Understanding asset values: stock prices, exchange rates, and the ‘peso problem’. Business Review, September/October, pp. 3–13.Google Scholar
Svetlova, E. and Fiedler, M. (2011). Understanding crisis: on the meaning of uncertainty and probability. In Dejuãn, O., Febrero, E. and Marcuzzo, M. C. (eds.), The First Great Recession of the 21st Century. Cheltenham, UK: Edward Elgar.Google Scholar
Svetlova, E. and van Helst, H. (2015). Decision-theoretic approaches to non-knowledge in economics. In Gross, M. and McGoey, L. (eds.), Routledge International Handbook of Ignorance Studies. London: Routledge.Google Scholar
Szafarz, A. (1984). Richard von Mises: l'échec d'une axiomatique. Dialectica, 38, pp. 311–17.CrossRefGoogle Scholar
Szafarz, A. (2009). How did financial-crisis-based criticisms of market efficiency get it so wrong? Working Paper CEB 9–48.CrossRefGoogle Scholar
Szafarz, A. (2012). Financial crises in efficient markets: how fundamentalists fuel volatility. Journal of Banking & Finance, 36, pp. 105–11.CrossRefGoogle Scholar
Taleb, N. N. (2007). The Black Swan: The Impact of the Highly Improbable. New York: Random House.Google Scholar
Temin, P. (2008). The German crisis of 1931: evidence and tradition. Cliometrica, 2, pp. 5–17.CrossRefGoogle Scholar
Ukhov, A. D. (2003). Financial innovation and Russian government debt before 1918. Yale Working Paper no. 3–20.Google Scholar
Veronesi, P. (2004). The peso problem hypothesis and stock market returns. Journal of Economic Dynamics and Control, 28, pp. 707–25.CrossRefGoogle Scholar
Weidenmier, M. (2002). Turning points in the US Civil War: views from the grayback market. Southern Economic Journal, 68, pp. 875–90.Google Scholar
Willard, K., Guinnane, T. and Rosen, H. (1996). Turning points in the Civil War: views from the greenback market. American Economic Review, 86, pp. 1001–18.Google Scholar
Witt, U. (2009). Novelty and the bounds of unknowledge in economics. Journal of Economic Methodology, 16, pp. 361–75.CrossRefGoogle Scholar
Zeckhauser, R. J. and Viscusi, W. K. (1990). Risk within reason. Science, 248, pp. 559–64.CrossRefGoogle ScholarPubMed
Zussman, A., Zussman, N. and Nielsen, M. O. (2008). Asset market perspectives on the Israeli–Palestinian conflict. Economica, 75, pp. 84–115.CrossRefGoogle Scholar