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New forecasting methods for an old problem: Predicting 147 years of systemic financial crises

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https://econpapers.repec.org/scripts/redir.pf?u=https%3A%2F%2Fwww.econstor.eu%2Fbitstream%2F10419%2F264550%2F1%2F1816447846.pdf;h=repec:zbw:uhhwps:67
Time Added
2022/09/26 18:30
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Gradient Boosting
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Authors
Emile du Plessis and Ulrich Fritsche
Abstract
A reflection on the lackluster growth over the decade since the Global Financial Crisis has renewed interest in preventative measures for a long-standing problem. Advances in machine learning algorithms during this period present promising forecasting solutions. In this context the paper develops new forecasting methods for an old problem by employing 13 machine learning algorithms to study 147 year of systemic financial crises across 17 countries. It entails 12 leading indicators comprising real banking and external sectors. Four modelling dimensions encompassing a contemporaneous pooled format through an expanding window transformations with a lag structure and 20-year rolling window as well as individual format are implemented to assess performance through recursive out-of-sample forecasts. Findings suggest fixed capital formation is the most important variable. GDP per capita and consumer inflation have increased in prominence whereas debt-to-GDP stock market and consumption were dominant at the turn of the 20th century. Through a lag structure banking sector predictors on average describe 28 percent of the variation in crisis prevalence real sector 64 percent and external sector 8 percent. A lag structure and rolling window both improve on optimised contemporaneous and individual country formats. Nearly half of all algorithms reach peak performance through a lag structure. As measured through AUC F1 and Brier scores top performing machine learning methods consistently pr
Keywords
machine learning ; systemic financial crises ; leading indicators ; forecasting ; early warning signal (search for similar items in EconPapers)
Year Published
2022
Series
No 67 WiSo-HH Working Paper Series from University of Hamburg Faculty of Business Economics and Social Sciences WISO Research Laboratory
Rank
0.53
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