2008-09 Financial Crisis Not Predictable

The 2008-2009 financial crisis is not predictable, according to Federal Reserve Bank of San Francisco research, "Predicting Crises, Part II: Did Anything Matter (to Everybody)?" by Andrew K. Rose and Mark M. Spiegel.

The authors looked at the factors mentioned as possible causes, including plausible variables, such as the magnitude of real estate price appreciation or the quality of the regulatory environment, and they all failed to perform well in predicting the crisis.

However, we have less success in linking crisis severity to its causes. We examine over 60 factors that have been advanced in the literature as potential causes of the 2008 credit crisis, but few emerge as robust predictors of its severity. Indeed, we find only one variable--the size of the equity market run-up prior to the crisis--that is a robust predictor of crisis severity. Other equally plausible variables fail to perform well, such as the magnitude of real estate price appreciation or the quality of the regulatory environment. Since early warning models must predict both the cross-country incidence of crises as well as their timing, our analysis bodes poorly for the success of such models

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