Financial Crises: Explanations, Types, and Implications; by Stijn Claessens and M. Ayhan Kose; imf working Paper 13/28; January 1, 2013

that analyze the ability of various models in predicting the latest crisis come to negative 

conclusions as well, others have found some predictive patterns. Regardless, there is scope to 

improve these models. 

 

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While known risks are being addressed, new risks can emerge. The limited ability of crises 

prediction models arises in part because countries do take steps to reduce vulnerabilities. In 

response to increased financial globalization and sudden stop risks, many emerging markets 

increased their international reserves since the late 1990s, which may have helped some 

countries avoid the impact of the recent crisis (De Gregorio, 2013; Kose and Prasad, 2010). 

Similarly, improvements in institutional environments which many countries have put in 

place over the last decades likely helped reduce some vulnerabilities. At the same time, 

however, new risks have emerged. In the latest crisis, the explosion of complex financial 

instruments and greater balance-sheet opaqueness and reliance on wholesale funding in 

highly integrated global financial markets led to greater risks of a crisis.