skip to content

Faculty of Economics

Journal Cover

Tambakis, D.

A Markov Chain Measure of Systemic Banking Crisis Frequency

Applied Economics Letters


Abstract: This study nests historical evidence for credit growth-fuelled financial instability in a two-state nonhomogeneous Markov chain with logistic crisis incidence. A long-run frequency measure is defined and calibrated for 17 advanced economies from 1870 to 2016. It is found that historical (implied) crisis frequencies display a V (J) pattern over time. A key implication is that policies strengthening capital adequacy contribute more to systemic stability than expanding deposit insurance or curbing sustained credit booms.

Keywords: Credit cycle, systemic banking crises, Markov chain

JEL Codes: C15, E30, E58, G01

Author links: Demosthenes N.  Tambakis  

Publisher's Link:

Cambridge Working Paper in Economics Version of Paper: A Markov-Chain Measure of Systemic Banking Crisis Frequency, Tambakis, D., (2020)

Papers and Publications

Recent Publications

Bhattacharya, D. and Shvets, J. Inferring Trade-Offs in University Admissions: Evidence from Cambridge Journal of Political Economy, accepted [2024]

Porzio, T., Rossi, F. and Santangelo, G. The Human Side of Structural Transformation American Economic Review [2022]

Gallo, E. and Yan, C. Efficiency and Equilibrium in Network Games: An Experiment Review of Economics and Statistics [2023]

Rauh, C. and Valladares-Esteban, A. On the Black-White Gaps in Labor Supply and Earnings over the Lifecycle in the US Review of Economic Dynamics [2023]