This paper provides a historical overview on financial crises and their origins. The objective is to discuss a few of the modern statistical methods that can be used to evaluate predictors of these rare events. The problem involves prediction of binary events and therefore fits modern statistical learning, signal processing theory, and classification methods. The discussion also emphasizes the need to supplement statistics and computational techniques with economics. A forecast’s success in this environment hinges on the economic consequences of the actions taken as a result of the forecast, rather than on typical statistical metrics of prediction accuracy.
Jorda, Oscar. 2013. “Assessing the Historical Role of Credit: Business Cycles, Financial Crises, and the Legacy of Charles S. Peirce,” Federal Reserve Bank of San Francisco Working Paper 2013-19. Available at https://doi.org/10.24148/wp2013-19