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Predicting National Vulnerability to Financial Crisis

July 5, 2010

My friend Jeff Frankel posts an interesting essay on variables that predict the vulnerability of nations to global financial crises. He and his collaborator find that the two most important predictors historically are levels of reserves and exchange rate overvaluation. These findings hold true for the 2008-2009 global crisis. Other important variables are current account balance and level of national savings.

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