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Beyond the typical twin crises: an examination of banking and sovereign debt crises

Nordmark, Jakob LU and Wihlborg, Michelle LU (2012) NEKP02 20121
Department of Economics
Abstract
This paper examines potential determinants of banking and sovereign debt crises for the period 1970-2008 using a multivariate logit model. In addition, the paper analyzes links between these types of crises through conditional and unconditional probabilities. The empirical results for banking crises suggest that higher inflation and real interest rates increase the likelihood of a banking crisis, whereas domestic credit growth and real GDP growth appear insignificant. It is also found that a high ratio of long-term external debt to GDP typically precedes debt crises, but real GDP growth and inflation appear insignificantly related to the probability of a debt crisis. Concerning the links, the results indicate that a banking crisis... (More)
This paper examines potential determinants of banking and sovereign debt crises for the period 1970-2008 using a multivariate logit model. In addition, the paper analyzes links between these types of crises through conditional and unconditional probabilities. The empirical results for banking crises suggest that higher inflation and real interest rates increase the likelihood of a banking crisis, whereas domestic credit growth and real GDP growth appear insignificant. It is also found that a high ratio of long-term external debt to GDP typically precedes debt crises, but real GDP growth and inflation appear insignificantly related to the probability of a debt crisis. Concerning the links, the results indicate that a banking crisis increases the likelihood of a debt crisis. However, for banking crises, little valuable information is gained when the occurrence of a debt crisis is used as the conditioning piece of information. The fact that quite few twin crises are found suggests that this phenomenon is relatively uncommon. (Less)
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author
Nordmark, Jakob LU and Wihlborg, Michelle LU
supervisor
organization
course
NEKP02 20121
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Banking crises, debt crises, twin crises, multivariate logit model
language
English
id
2635936
date added to LUP
2012-06-08 14:58:22
date last changed
2012-06-08 14:58:22
@misc{2635936,
  abstract     = {This paper examines potential determinants of banking and sovereign debt crises for the period 1970-2008 using a multivariate logit model. In addition, the paper analyzes links between these types of crises through conditional and unconditional probabilities. The empirical results for banking crises suggest that higher inflation and real interest rates increase the likelihood of a banking crisis, whereas domestic credit growth and real GDP growth appear insignificant. It is also found that a high ratio of long-term external debt to GDP typically precedes debt crises, but real GDP growth and inflation appear insignificantly related to the probability of a debt crisis. Concerning the links, the results indicate that a banking crisis increases the likelihood of a debt crisis. However, for banking crises, little valuable information is gained when the occurrence of a debt crisis is used as the conditioning piece of information. The fact that quite few twin crises are found suggests that this phenomenon is relatively uncommon.},
  author       = {Nordmark, Jakob and Wihlborg, Michelle},
  keyword      = {Banking crises,debt crises,twin crises,multivariate logit model},
  language     = {eng},
  note         = {Student Paper},
  title        = {Beyond the typical twin crises: an examination of banking and sovereign debt crises},
  year         = {2012},
}