Stability periods between financial crises: The role of macroeconomic fundamentals and crises management policies ¬リニ

a r t i c l e i n f o This study aims to identify which factors explain why some countries enjoy long durations of stability, while others experience crises in shorter intervals. We analyze the duration of stability periods between currency, debt, and banking crises by employing an innovative econometric strategy, the Finite Mixture Model (FMM). Real and financial variables show high predictive power for stability spells between currency crises. Regarding debt crises, the real interest rate is observed to be the best predictor. The time between systemic financial crises appears to be prolonged through government interventions and through IMF program participation, while bank recapitalization has a negative impact. Public and academic debates on the topic of financial crises primarily take issue with the onset and direct recovery from financial crises episodes. Recently, however, some scholars, such as Reinhart and Rogoff (2009, 2010a,b) turned their attention to the recurrence of banking crises. They show that these perennial events have occurred at a relatively stable frequency in both emerging and advanced economies. At the same time, a small share of the literature has been devoted to the fact that some countries have faced a larger number of financial crises than others. In the hope to gain some additional insight, this study attempts to cover the other side of the same coin: The determinants of the length of stability periods between financial crises. To this end, an innovative econometric technique is used: The Finite Mixture Model. To the best of our knowledge, this is the first attempt to do so. A closely related topic, the frequency of financial crises, has, among others, been analyzed by Jordà et al. (2010), who investigate if crises can be predicted by macroeconomic fundamentals or whether they are randomly distributed events. Rejecting the former, the authors conclude that most financial crises occur randomly. Regarding the behavior of macroeconomic variables during pre-and post-crises periods, they find that such events are preceded by low natural interest rates and rising credit, while a large share of financial crises episodes are followed by recessions. Distinguishing between " normal " recessions during the business cycle and recessions accompanied by financial crises, they discover that the latter ones are one third more costly in terms of output losses. Tudela (2004) adopts a duration model approach to analyze the determinants of currency crises. One of the main objectives of the study is …