Identifying indicators of global financial crisis with fuzzy logic and data science: A comparative analysis between developing and developed economies

Abstract

The main purpose of this study is to define the leading indicators of the 2008 global financial crisis for both developing and developed economies. In this context, 16 different variables are defined with the help of literature review. These variables are weighted by considering the fuzzy DEMATEL approach and the most significant 8 variables are identified. In addition to this analysis, decision tree methodology is also taken into consideration to understand main determinants of the financial crisis. The findings show that growth rate and capital adequacy of the banking industry are accepted as the leading indicators of the global crisis for developed economies. On the other hand, it is also concluded that inflation and industry development are accepted as the indicator of the financial crisis in addition to the economic growth and capital adequacy of the banks for developing economies. While considering the results, it is recommended that developed countries should periodically control economic growth rate and capital adequacy ratio of the banks to understand whether they have a financial crisis risk or not. Furthermore, for developing countries, it is also recommended that inflation rate should be periodically controlled, and they should identify necessary actions in order to minimize inflation rate.