Does Machine Learning Help us Predict Banking Crises?
Journal of Financial Stability,
Predicting Free-riding in a Public Goods Game – Analysis of Content and Dynamic Facial Expressions in Face-to-Face Communication
This paper illustrates how audio-visual data from pre-play face-to-face communication can be used to identify groups which contain free-riders in a public goods experiment. It focuses on two channels over which face-to-face communication influences contributions to a public good. Firstly, the contents of the face-to-face communication are investigated by categorising specific strategic information and using simple meta-data. Secondly, a machine-learning approach to analyse facial expressions of the subjects during their communications is implemented. These approaches constitute the first of their kind, analysing content and facial expressions in face-to-face communication aiming to predict the behaviour of the subjects in a public goods game. The analysis shows that verbally mentioning to fully contribute to the public good until the very end and communicating through facial clues reduce the commonly observed end-game behaviour. The length of the face-to-face communication quantified in number of words is further a good measure to predict cooperation behaviour towards the end of the game. The obtained findings provide first insights how a priori available information can be utilised to predict free-riding behaviour in public goods games.
An Evaluation of Early Warning Models for Systemic Banking Crises: Does Machine Learning Improve Predictions?
This paper compares the out-of-sample predictive performance of different early warning models for systemic banking crises using a sample of advanced economies covering the past 45 years. We compare a benchmark logit approach to several machine learning approaches recently proposed in the literature. We find that while machine learning methods often attain a very high in-sample fit, they are outperformed by the logit approach in recursive out-of-sample evaluations. This result is robust to the choice of performance measure, crisis definition, preference parameter, and sample length, as well as to using different sets of variables and data transformations. Thus, our paper suggests that further enhancements to machine learning early warning models are needed before they are able to offer a substantial value-added for predicting systemic banking crises. Conventional logit models appear to use the available information already fairly effciently, and would for instance have been able to predict the 2007/2008 financial crisis out-of-sample for many countries. In line with economic intuition, these models identify credit expansions, asset price booms and external imbalances as key predictors of systemic banking crises.
Fiscal Policy and Fiscal Fragility: Empirical Evidence from the OECD ...
Does Machine Learning Help us Predict Banking Crises? ...