Are crises predictable?

There is tons of literature on this subject which gets very confusing. However, this short and simple note from Bharat Trehan of FRBSF is a nice way to have some idea. This is Part I of the two article series. It says:

The enormity of the current financial collapse, widely described as a bursting bubble, raises the question whether the crisis could have been predicted, possibly permitting action to offset its effects. In the first of two Economic Letters on the subject, we look at developments in the United States and find evidence suggesting that simple indicators based on asset market developments can provide early warnings about potentially dangerous financial imbalances.

He looks at two simple indicators – credit gap and change in property price to suggest we can see some signs of distress ahead.

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