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Developing an Early Warning System for Financial Crises in Vietnam

Author

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  • Tristan Nguyen
  • Nguyen Ngoc Duy

Abstract

In this paper, we develop an applicable early warning model that can predict financial crises for Vietnam. To achieve this goal, we analyze and extend the existing early warning models which have been developed by Kaminsky et al. (1998); Goldstein et al. (2000) and Edison (2003) by using the signal approach. The model observes several indicators (signals) that tend to have an unusual behavior in the periods preceding a financial crisis. When an indicator exceeds or falls below a given threshold, then it sends a “signal” that a financial crisis might occur within a certain period (12 or 24 months). We use 14 most relevant indicators to predict potential crises in Vietnam’s economy. In terms of practice, policy makers should have better insights about the vulnerability of the economy in order to recognize financial crises at an earlier stage. Therefore, the authors offer some recommendations for policy makers how to achieve the highest efficiency in warning and preventing future financial crises in Vietnam.

Suggested Citation

  • Tristan Nguyen & Nguyen Ngoc Duy, 2017. "Developing an Early Warning System for Financial Crises in Vietnam," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 7(4), pages 413-430.
    • Handle: RePEc:asi:aeafrj:v:7:y:2017:i:4:p:413-430:id:1565
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    Cited by:

    1. Chin-Hong Puah, & Tai-Hock Kuek, & M. Affendy Arip,, 2017. "Assessing Thailand’s financial vulnerability: An early warning approach," Business and Economic Horizons (BEH), Prague Development Center, vol. 13(4), pages 496-505, October.
    2. Tai-Hock Kuek & Chin-Hong Puah & M. Affendy Arip, 2019. "Predicting Financial Vulnerability in Malaysia: Evidence From the Signals Approach," Research in World Economy, Research in World Economy, Sciedu Press, vol. 10(3), pages 89-98, December.

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