An analytic network process model for financial-crisis forecasting

An analytic network process model for financial-crisis forecasting

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Article ID: iaor20052917
Country: Netherlands
Volume: 20
Issue: 4
Start Page Number: 573
End Page Number: 587
Publication Date: Oct 2004
Journal: International Journal of Forecasting
Authors: ,
Keywords: forecasting: applications
Abstract:

We discuss and develop an imbalance-crisis turning point model to forecast the likelihood of a financial crisis based on an Analytic Network Process framework. The Analytic Network Process (ANP) is a general theory of relative measurement used to derive composite-priority-ratio scales from individual-ratio scales that represent relative influence of factors that interact with respect to control criteria. Through its supermatrix, which is composed of matrices of column priorities, the ANP framework captures the outcome of dependence and feedback within and between clusters of explanatory factors. We argue that our framework is more flexible and is more comprehensive than traditional methods and previous models. We illustrate how the ANP model would be implemented for forecasting the probability of crises.

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