Critical slowing down as an early warning signal for financial crises?
Date published
2018-08-10
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Publisher
Springer
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Article
ISSN
0377-7332
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Citation
Diks C, Hommes C, Wang J. Critical slowing down as an early warning signal for financial crises?. Empirical Economics, Volume 57, Issue 4, October 2019, pp. 1201-1228
Abstract
Financial crises have repeatedly been coined as a potential application area in the recent literature on constructing early warning signals through identifying characteristics of critical slowing down on the basis of time series observations. To test this idea, we consider four historical financial crises—Black Monday 1987, the 1997 Asian Crisis, the 2000 Dot-com bubble burst, and the 2008 Financial Crisis—and investigate whether there is evidence for critical slowing down prior to these market collapses. We find statistical evidence for critical slowing down before Black Monday 1987, while the results are mixed or insignificant for the more recent financial crises.
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Github
Keywords
Time series, Bifurcations, Early warning signal, Critical slowing down, Nonlinear dynamical systems, Financial instability
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Attribution 4.0 International