Volatility, Growth and Financial Crises

This research group analyses the build-up of financial vulnerabilities and real consequences of financial crises. Different policy shocks and the causal reaction of macroeconomic aggregates are identified. Early-warning models describe the cyclical nature of financial vulnerabilities.

IWH Data Project: Financial Stability Indicators in Europe

Research Cluster
Financial Stability and Regulation

Your contact

Professor Dr Gregor von Schweinitz
Professor Dr Gregor von Schweinitz
Mitglied - Department Macroeconomics
Send Message +49 345 7753-744 Personal page

EXTERNAL FUNDING

01.2018 ‐ 12.2018

International Monetary Policy Transmission

Deutsche Bundesbank

Professor Dr Gregor von Schweinitz

01.2017 ‐ 12.2018

Early-warning Models for Systemic Banking Crises

German Research Foundation (DFG)

Professor Dr Gregor von Schweinitz

Refereed Publications

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The Impact of Preferences on Early Warning Systems - The Case of the European Commission's Scoreboard

Tobias Knedlik

in: European Journal of Political Economy, 2014

Abstract

The European Commission’s Scoreboard of Macroeconomic Imbalances is a rare case of a publicly released early warning system. It allows the preferences of the politicians involved to be analysed with regard to the two potential errors of an early warning system – missing a crisis and issuing a false alarm. These preferences might differ with the institutional setting. Such an analysis is done for the first time in this article for early warning systems in general by using a standard signals approach, including a preference-based optimisation approach, to set thresholds. It is shown that, in general, the thresholds of the Commission’s Scoreboard are set low (resulting in more alarm signals), as compared to a neutral stand. Based on political economy considerations the result could have been expected.

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Exchange Rate Regime, Real Misalignment and Currency Crises

Oliver Holtemöller Sushanta Mallick

in: Economic Modelling, No. 34, 2013

Abstract

Based on 69 sample countries, this paper examines the effect of macroeconomic fundamentals on real effective exchange rates (REER) in these sample countries. Using the misalignment of actual REER from its equilibrium level, we have estimated the factors explaining the extent of currency over- or under-valuation. Overall, we find that the higher the flexibility of the currency regime, the lower is the misalignment. The estimates are robust to different sub-samples of countries. We then explore the impact of such misalignment on the probability of a currency crisis in the next period, indicating the extent to which misalignment could be used as a leading indicator of a potential crisis. This paper thus makes a new contribution to the debate on the choice of exchange rate regime by bringing together real exchange rate misalignment and currency crisis literature.

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Predicting Financial Crises: The (Statistical) Significance of the Signals Approach

Makram El-Shagi Tobias Knedlik Gregor von Schweinitz

in: Journal of International Money and Finance, No. 35, 2013

Abstract

The signals approach as an early-warning system has been fairly successful in detecting crises, but it has so far failed to gain popularity in the scientific community because it cannot distinguish between randomly achieved in-sample fit and true predictive power. To overcome this obstacle, we test the null hypothesis of no correlation between indicators and crisis probability in three applications of the signals approach to different crisis types. To that end, we propose bootstraps specifically tailored to the characteristics of the respective datasets. We find (1) that previous applications of the signals approach yield economically meaningful results; (2) that composite indicators aggregating information contained in individual indicators add value to the signals approach; and (3) that indicators which are found to be significant in-sample usually perform similarly well out-of-sample.

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Sovereign Default Risk in the Euro-periphery and the Euro-candidate Countries

Hubert Gabrisch Lucjan T. Orlowski Toralf Pusch

in: Journal of Comparative Economics, 2011

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The Role of Uncertainty in the Euro Crisis - A Reconsideration of Liquidity Preference Theory

Toralf Pusch

in: Journal of Post Keynesian Economics, 2013

Abstract

With the world financial crisis came the rediscovery of the active role fiscal policy could play in remedying the situation. More recently, the Euro Crisis, with its mounting funding costs facing governments of a number of Southern EU member states and Ireland, has called this strategy into question. Opposing this view, the main point of this contribution is to elaborate on the link between rising sovereign risk premia in the Eurozone and a major feature of the financial crisis - elevated uncertainty after the Lehman collapse. Theoretically, this link is developed with reference to Keynes' liquidity preference theory. The high explanatory power of rising uncertainty in financial markets and the detrimental effects of fiscal austerity on the evolution of sovereign risk spreads are demonstrated empirically by means of panel regressions and supplementary correlation analyses.

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Working Papers

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