Can Macroeconomic Indicators Predict a Currency Crisis? Evidence from Selected Southeast Asian Countries
AbstractThis 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.
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Bibliographic InfoArticle provided by M.E. Sharpe, Inc. in its journal Emerging Markets Finance and Trade.
Volume (Year): 46 (2010)
Issue (Month): 6 (November)
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Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=111024
currency crisis; forecasting; probit model; signaling model;
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- 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.
- Hegerty, Scott W., 2012. "Money market pressure in emerging economies: International contagion versus domestic determinants," Economic Systems, Elsevier, vol. 36(4), pages 506-521.
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