What is it about?

The Qual VAR model creates a banking crisis index to forecast forthcoming crises. We study 40 years of banking crises across 18 countries, and focus on the impact that different time periods, regions, and level of development have on banking crises. We also show how Qual VAR improves on the prediction of banking crises.

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Why is it important?

We find that banking sector variables contribute nearly half of the probability of a crisis taking place, external sector a third and real sector a fifth. The banking crisis index signals forthcoming crises up to 12-months in advance. Improved forecasting performance may assist banking oversight departments and support remediation efforts of policymakers to adequately and timeously respond to banking crises.


To our understanding, this is the first attempt to use Qual VAR to predict banking crises. Findings show the strength of Qual VAR in comparison to commonly used regression model, and could be considered as a robust tool for future research across a broad array of topics.

Emile du Plessis
University of Hamburg

Read the Original

This page is a summary of: Dynamic forecasting of banking crises with a Qual VAR, Journal of Applied Economics, September 2022, Taylor & Francis,
DOI: 10.1080/15140326.2020.1816132.
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