The authors thank an anonymous referee, Claudio Borio, Alexander Karmann, Chung-Ming Kuan, and seminar participants at the BIS and Academia Sinica for helpful comments.
Money Market Pressure and the Determinants of Banking Crises
Article first published online: 25 JUL 2007
Journal of Money, Credit and Banking
Volume 39, Issue 5, pages 1037–1066, August 2007
How to Cite
VON HAGEN, J. and HO, T.-K. (2007), Money Market Pressure and the Determinants of Banking Crises. Journal of Money, Credit and Banking, 39: 1037–1066. doi: 10.1111/j.1538-4616.2007.00057.x
- Issue published online: 25 JUL 2007
- Article first published online: 25 JUL 2007
- Received November 16, 2004; and accepted in revised form June 19, 2006.
- identification of banking crises;
- events method;
- index of money market pressure;
- conditional logit model
This article develops an index of money market pressure to identify banking crises. We define banking crises as periods in which there is excessive demand for liquidity in the money market. We begin with the theoretical foundation of this new method. With the newly defined crisis episodes, we examine the determinants of banking crises using data complied from 47 countries. We find that slowdown of real GDP, lower real interest rates, extremely high inflation, large fiscal deficits, and over-valued exchange rates tend to precede banking crises. The effects of monetary base growth on the probability of banking crises are negligible.