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Forecasting Currency Crises: Which Methods Signaled The South African Crisis Of June 2006?

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  • Tobias Knedlik
  • Rolf Scheufele

Abstract

In this paper we test the ability of three of the most popular methods to forecast South African currency crises with a special emphasis on their out-of-sample performance. We choose the latest crisis of June 2006 to conduct an out-of-sample experiment. The results show that the signals approach was not able to forecast the out-of-sample crisis correctly; the probit approach was able to predict the crisis but only with models, that were based on raw data. The Markov-regime-switching approach predicts the out-of-sample crisis well. However, the results are not straightforward. In-sample, the probit models performed remarkably well and were also able to detect, at least to some extent, out-of-sample currency crises before their occurrence. The recommendation is to not restrict the forecasting to only one approach. Copyright (c) 2008 The Authors. Journal compilation (c) 2008 Economic Society of South Africa.

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Bibliographic Info

Article provided by Economic Society of South Africa in its journal South African Journal of Economics.

Volume (Year): 76 (2008)
Issue (Month): 3 (09)
Pages: 367-383

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Handle: RePEc:bla:sajeco:v:76:y:2008:i:3:p:367-383

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Cited by:
  1. Makram El-Shagi & Tobias Knedlik & Gregor von Schweinitz, 2012. "Predicting Financial Crises: The (Statistical) Significance of the Signals Approach," IWH Discussion Papers 3, Halle Institute for Economic Research.
  2. Duncan, Andrew S. & Kabundi, Alain, 2013. "Domestic and foreign sources of volatility spillover to South African asset classes," Economic Modelling, Elsevier, vol. 31(C), pages 566-573.
  3. Tobias Knedlik & Gregor von Schweinitz, 2011. "Macroeconomic Imbalances as Indicators for Debt Crises in Europe," IWH Discussion Papers 12, Halle Institute for Economic Research.
  4. Andrew S. Duncan & Alain Kabundi, 2011. "Volatility Spillovers across South African Asset Classes during Domestic and Foreign," Working Papers 202, Economic Research Southern Africa.
  5. Andrew S Duncan & Guangling D Liu, 2009. "Modelling South African Currency Crises as Structural Changes in the Volatility of the Rand," Working Papers 140, Economic Research Southern Africa.
  6. Diemo Dietrich & Tobias Knedlik & Axel Lindner, 2011. "Central and Eastern European countries in the global financial crisis: a typical twin crisis?," Post-Communist Economies, Taylor & Francis Journals, vol. 23(4), pages 415-432, April.

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