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

Published online by Cambridge University Press:  26 March 2020

E. Philip Davis  and
Dilruba Karim
E. Philip Davis*
Affiliation:
Brunel UniversityUxbridgeMiddlesexUB8 3PH NIES
Dilruba Karim*
Affiliation:
Brunel UniversityUxbridgeMiddlesexUB8 3PH
*
e-mail e_philip_davis@msn.com
e-mail dilruba.karim@brunel.ac.uk
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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.

Keywords

Sub-prime crisisearly warningfinancial instabilitymacroprudential analysisE44E58
Type
Articles
Information
National Institute Economic Review , Volume 206 , October 2008 , pp. 35 - 47
Copyright
Copyright © 2008 National Institute of Economic and Social Research

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