Recursive macroeconomic model for crisis prediction

This paper focuses attention on prediction of economic crisis using a recursive dynamic economic model. The general background of the crisis and the various financial and economic arguments to explain the crisis are included into the model. These arguments were used considering a hypothetical country with general global financial interlinks to produce a crisis prediction model. Employed in this paper are the recently discovered methods in recursive macroeconomics to build a dynamic model to explain the general financial picture of the hypothetical country. The model applied to Asian Crisis revealed that the effect of Asian Economic Crisis could last a considerable period of time and that any country could be vulnerable to economic crisis if a strategy of proper economic planning and management is not exercised. The model provides a practical tool for macroeconomists while it lays a foundation for future development of new economic models that enable one to study the state of an economy with various policy alternatives.