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Monitoring and Forecasting Currency Crises

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Author Info
ATSUSHI INOUE
BARBARA ROSSI

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Abstract

Can we improve forecasts of currency crises by using a large number of predictors? Which predictors should we use? This paper evaluates the performance of traditional leading indicators and a new Diffusion Index (DI) method as Early Warning Systems to monitor the risk and forecast the likelihood of the recent currency crises in East Asia. We find that the DI performs quite well in real time. For most countries, the forecasted probabilities of a crisis increase substantially around the actual time of the crisis. The economic variables that help in forecasting future crises are output growth, interest rates and money growth. Copyright (c)2008 The Ohio State University.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1538-4616.2008.00125.x
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Publisher Info
Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 40 (2008)
Issue (Month): 2-3 (03)
Pages: 523-534
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Handle: RePEc:mcb:jmoncb:v:40:y:2008:i:2-3:p:523-534

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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  1. Andrea Cipollini & George Kapetanios, 2008. "Forecasting Financial Crises and Contagion in Asia using Dynamic Factor Analysis," Center for Economic Research (RECent) 014, University of Modena and Reggio E., Dept. of Economics. [Downloadable!]
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This page was last updated on 2009-10-15.

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