APPENDIX I. Data Description
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Daniel Hardy, currently in the Middle Eastern Department, and Ceyla Pazarbaşioğlu, currently in European I Department, were in the Monetary and Exchange Affairs Department when this paper was written. The authors wish to thank William E. Alexander, Timothy Lane, Eduardo Levy Yeyati, Sunil Sharma and participants at an MAE seminar for helpful comments and suggestions. Research assistance by Jahanara Begum and Kiran Sastry is greatly appreciated. The authors alone are responsible for the views expressed.
These predictions will be reported in the form “Predictions |y = i: p0/p1 …/pn” to indicate that, for observations when in fact event i occurs, the model predicts event 0 a total of p0 times, event 1 a total of p1 times, etc.
For concision, the term “crisis” will be used to denote banking sector difficulties generally when the distinction between crises and severe problems is irrelevant.
Estimation was also performed for a dependent variable that identified separately crisis years and the two preceding years (i.e., a dummy variable with the values 0,1,2,3). However, it was difficult to find any significant explanatory variables singling out the periods two years before crises.
The results for y1 and y2 are generally similar to those for y3=1 and y3=2, respectively. For concision they are not included in this paper but are available from the authors upon request.
Thus, instances of y3=2 are explained using only lagged values, but instances of y3=1, the pre-crisis year, are explained in part with contemporaneous values.
Joint estimation for crisis and pre-crisis periods seems to yield gains in efficiency. The predictions for y3 are more reliable than when either y1 or y2 alone is the dependent variable.
In a few crisis or pre-crisis years, the estimated probability of y3 = 0 is larger than that of each of the other two possibilities, but still less than 50 percent. Hence, the model predicts either y3=1 or y3=2 in 41 out of 86 instances where this is the case. Conversely, it predicts either y3=1 or y3=2 in 14 of 167 instances where in fact y3=0.
Detailed results are available upon request.
The similarity of the estimated coefficients obtained y1 and y2 to those obtained from joint estimation for y3 is also suggestive of robustness.
Unfortunately, a measure of interest rate spreads was not available for many countries over most of the sample.
Detailed results are available on request.
For each specification a Likelihood Ratio test was performed. The fixed effects were always found to be very highly significantly different from zero.
The results of the Wu-Hausman test used indicate that the estimates of parameters on the explicit explanatory variables were no significantly affected by the inclusion of fixed effects.