Quantitative Analyses of Crises: Crisis Identification and Causality

Abstract

Currently, different studies use different conceptual and operational definitions of crises. The resulting crisis identifications are inconsistent. The different crisis identifications can lead to inconsistent conclusions and policy formulation even if the same analytical framework is applied. Also, most studies focus on only a few types of crises. This narrow focus on crises may not capture the multidimensionality of crises in which different crisis types occur simultaneously in the 1990s. Seven crisis types are analyzed namely (i) liquidity type banking crises, (ii) solvency type banking crises, (iii) balance of payments crises, (iv) currency crises, (v) debt crises, (vi) growth rate crises and (vii) financial crises. Crisis data are collected from fifteen emerging economies in 1980-2002 on a quarterly basis. The crisis identification exercise finds that multidimensionality in which different crisis types occur in short-periods is one of the most important characteristics of recent crises. Further, Granger causality test in five Asian economies (Indonesia, Korea, Malaysia, the Philippines and Thailand) in 1980-2002 finds that currency crises tend to trigger other types of crises, and therefore exchange rate management is essential.