Accounting for crisis
By: Venky Nagar, Gwen Yu
Contributors: Yu, Gwen; Harvard Business School
Edition: Revised edition
Series: Working paper / Harvard Business School -- 11-103; Working paper (Harvard Business School) -- 11-103
Publisher: Harvard Business School
Published: 2012
Place of publication: Boston]
Language: eng
Number of pages: 68
Description: 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.
Notes: "Revised October 2012"--Publisher's Web site.

Includes bibliographical references (pages 30-33).