| HBS Working Paper Series
Accounting for Crises
We provide one of the first tests of recent macro global-game crisis models, which show that the precision of public signals can coordinate crises (e.g., Angeletos and Werning 2006; Morris and Shin 2002, 2003). In these models, self-fulfilling crises (independent of poor fundamentals) can occur only when publicly disclosed signals of fundamentals have high precision; poor fundamentals are the sole driver of crises only in low-precision settings. We affirm this proposition for 41 currency crises by exploiting a key publicly-disclosed signal of fundamentals that drives financial markets — namely, accounting data. We find that accounting signals of fundamentals are stronger in-sample predictors of crises in low precision countries.
Forecasting and Prediction;
Nagar, Venky, and Gwen Yu. "Accounting for Crises." Harvard Business School Working Paper, No. 11–103, April 2011. (Revised October 2012.)