American Economic Journal: Macroeconomics: Vol. 6 No. 3 (July 2014)

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Accounting for Crises

Article Citation

Nagar, Venky, and Gwen Yu. 2014. "Accounting for Crises." American Economic Journal: Macroeconomics, 6(3): 184-213.

DOI: 10.1257/mac.6.3.184

Abstract

We provide among the first empirical evidence, consistent with recent macro global game crisis models, that shows that the precision of public signals can coordinate crises. In these models, self-fulfilling crises independent of 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 exploit a key publicly disclosed signal of fundamentals, namely accounting data, for 68 currency and systemic banking crises in 17 countries. We find that precrisis accounting signals of fundamentals are significantly lower only in low-precision countries.

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Online Appendix (563.25 KB) | Download Data Set (751.52 KB) | Author Disclosure Statement(s) (103.54 KB)

Authors

Nagar, Venky (U MI)
Yu, Gwen (Harvard U)

JEL Classifications

D82: Asymmetric and Private Information; Mechanism Design
E44: Financial Markets and the Macroeconomy
G01: Financial Crises
G14: Information and Market Efficiency; Event Studies; Insider Trading
G21: Banks; Depository Institutions; Micro Finance Institutions; Mortgages
L25: Firm Performance: Size, Diversification, and Scope
M40: Accounting and Auditing: General

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