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Can Macroeconomic Indicators Predict a Currency Crisis? Evidence from Selected Southeast Asian Countries

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  • Saksit Budsayaplakorn
  • Sel Dibooglu
  • Ike Mathur

Abstract

This paper examines the probability of currency crises using a signal approach and a multivariate probit model. The results indicate that the signal approach can provide an effective warning system despite its nonparametric nature. The top three indicators that are useful in anticipating crises include international reserves, stock market indices, and gross domestic product (GDP), in that order. Excess money balances and the ratio of domestic credit to GDP are significant and have positive correlation with the probability of a crisis. The growth rate of exports and the stock indices are significant and have a negative relationship with a crisis probability. Overall, the results indicate that government policies, the macroeconomic environment, and investor panic/self-fulfilling expectations all play a role in the making of a crisis.

Suggested Citation

  • Saksit Budsayaplakorn & Sel Dibooglu & Ike Mathur, 2010. "Can Macroeconomic Indicators Predict a Currency Crisis? Evidence from Selected Southeast Asian Countries," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 46(6), pages 5-21, November.
    • Handle: RePEc:mes:emfitr:v:46:y:2010:i:6:p:5-21
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    Citations

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    Cited by:

    1. Ali Ari & Raif Cergibozan, 2016. "A Comparison of Currency Crisis Dating Methods: Turkey 1990-2014," Montenegrin Journal of Economics, Economic Laboratory for Transition Research (ELIT), vol. 12(3), pages 19-37.
    2. Ruoxi Zhang & Xue Li & Satish Chand, 2019. "An Early Warning Of An Impending Currency Crisis In China," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 64(05), pages 1101-1125, December.
    3. Hegerty, Scott W., 2012. "Money market pressure in emerging economies: International contagion versus domestic determinants," Economic Systems, Elsevier, vol. 36(4), pages 506-521.
    4. Ari, Ali & Cergibozan, Raif, 2018. "Currency crises in Turkey: An empirical assessment," Research in International Business and Finance, Elsevier, vol. 46(C), pages 281-293.
    5. Nguyen, Vu Hong Thai & Boateng, Agyenim, 2015. "Bank excess reserves in emerging economies: A critical review and research agenda," International Review of Financial Analysis, Elsevier, vol. 39(C), pages 158-166.
    6. Fendel Ralf & Stremmel Hanno, 2016. "Characteristics of Banking Crises: A Comparative Study with Geographical Contagion," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 236(3), pages 349-388, May.
    7. Ruoxi Zhang & Xue Li & Satish Chand, 2018. "An Early Warning Of An Impending Currency Crisis In China," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 64(05), pages 1101-1125, July.
    8. Maylis Avaro, 2020. "Zombie International Currency: The Pound Sterling 1945-1973," IHEID Working Papers 03-2020, Economics Section, The Graduate Institute of International Studies, revised 27 Apr 2021.
    9. Kutan, Ali M. & Muradoglu, Gulnur & Sudjana, Brasukra G., 2012. "IMF programs, financial and real sector performance, and the Asian crisis," Journal of Banking & Finance, Elsevier, vol. 36(1), pages 164-182.
    10. Kochaniak, Katarzyna & Ulman, Paweł & Zajkowski, Robert, 2023. "Effectiveness of COVID-19 state aid for microenterprises in Poland," International Review of Economics & Finance, Elsevier, vol. 86(C), pages 483-497.
    11. Ivana Marjanoviæ & Milan Markoviæ, 2019. "Determinants of currency crises in the Republic of Serbia," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 37(1), pages 191-212.

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