A lot has recently been written on the causes of banking crises. Central banks – many of which have taken on responsibility for macroprudential policy – have produced much of it.
This time it is the turn of Martin Weale, an external member of the Bank of England’s Monetary Policy Committee, and Matthew Corder, a Bank economist, who have published a paper on predicting crises and recessions.
Though the research points to three reasonable predictors of crises, none are perfect. The degree to which they are flawed offers some indication of just how tricky setting policy for financial stability will be.
