Early warning indicators in the Moroccan financial system

Abstract

Financial crises can cross borders and have negative repercussions on the real economy even more in countries where the financial system is very undeveloped. Therefore, considering the developed techniques is important to guarantee the resilience and the stability of the financial system as a whole. Several countries keep their efforts in terms of implementing a preventive systemic risk policy to reduce costs in the event of a financial crisis. Consequently, the development of an early warning system is essential to predict the onset of financial crises and avoid their repercussions on financial systems. It is in this context that we will focus on the development of an early warning model based on the review of existing literature on the subject. To do this, we first proceed to the development of a binary crisis index BSFI (Kibricioglu 2002) which is developed by three financial variables namely: customer deposits, loans to the private sector, and the currency liabilities. Then, we estimate the binary logit model, in order to predict the scenarios of the probabilities of financial crises that can affect our financial system based on financial and monetary variables.

keywords:  early warning system, financial system, financial crisis, logit model.

JEL Classification : G19 ; D53 ; G01 ; C25.

Paper type: Empirical Research.