On the issue of predicting global financial and economic crises

Abstract

Assumptions about the impending new global crisis, which are increasingly found in expert discussions, have intensified the search for reliable crisis predictors, despite the existing theoretical consensus on the fundamental impossibility of forecasting crises. The purpose of the article is to describe the most popular “new” crisis predictors and evaluate their predictive properties. The primary research method was monitoring the confirmation of signals supplied by predictors, indicators of macroeconomic dynamics based on retrospective data. As a result of the study, we clarified the classification of types of financial crises to determine the predictors that best predict certain types of financial crises, which in current conditions are very likely to be the starting stage of a new kind of financial and economic crisis. We analysed financial condition indices (FCI); VIX (“fear index”); yield spreads between US treasury bonds of different maturities; investor sentiment indices and risk premium indicators; CAPE (Schiller coefficient). We analysed the signals from the “new” crisis predictors about the possible onset of the crisis. The authors concluded that various predictors show good results concerning crises of a particular type (the starting point of which were different segments of the financial sector). The analysis of the predictor time of various predictors made it possible to build them in a certain sequence depending on the time interval between the predictor signal and the onset of the crisis. Based on combining the linking of predictors with the types of crises that they predict better, with a sequence of predictors arranged according to the time of the predictions, we proposed a flow chart for monitoring external crisis predictors.