‘Predictive Indicators of Financial Crises’ by Chamon
and Crowe discusses some of the key contributions of
this literature, mainly focusing on the line of work that
has been applied at the IMF, whose mandate involves
surveillance and who is often a key player in crisis resolution. The authors also discuss the key lessons that can
be learned by applying these classes of tools in a policy
environment. The authors find that many different
strands of work point to a handful of variables playing a leading role in explaining crises in emerging markets.
But predicting the timing of crises has remained very
challenging. For market participants, timing is of the
essence. But for policymakers it is more preferable to
focus on identifying vulnerabilities, preferably with
enough advance time so they can be tackled before turning into a crisis. This is the direction toward which some
institutions, including the IMF, have moved.