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Federal Reserve Bank of San Francisco
Working Paper Series
Cross-country causes and consequences of the 2008 crisis: early warning
Andrew K. Rose
Mark M. Spiegel
Abstract

This paper models the causes of the 2008 financial crisis together with its manifestations, using a Multiple Indicator Multiple Cause (MIMIC) model. Our analysis is conducted on a cross-section of 107 countries; we focus on national causes and consequences of the crisis, ignoring crosscountry "contagion" effects. Our model of the incidence of the crisis combines 2008 changes in real GDP, the stock market, country credit ratings, and the exchange rate. We explore the linkages between these manifestations of the crisis and a number of its possible causes from 2006 and earlier. We include over sixty potential causes of the crisis, covering such categories as: financial system policies and conditions; asset price appreciation in real estate and equity markets; international imbalances and foreign reserve adequacy; macroeconomic policies; and institutional and geographic features. Despite the fact that we use a wide number of possible causes in a flexible statistical framework, we are unable to link most of the commonly cited causes of the crisis to its incidence across countries. This negative finding in the cross-section makes us skeptical of the accuracy of "early warning" systems of potential crises, which must also predict their timing.


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Andrew K. Rose & Mark M. Spiegel, Cross-country causes and consequences of the 2008 crisis: early warning, Federal Reserve Bank of San Francisco, Working Paper Series 2009-17, 2009.
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Keywords: Financial crises ; Econometric models
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