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Leading Indicators of Currency Crises

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  • Graciela Kaminsky

    (International Monetary Fund)

  • Saul Lizondo

    (International Monetary Fund)

  • Carmen M. Reinhart

    (International Monetary Fund)

Abstract

This paper examines the empirical evidence on currency crises and proposes a specific early warning system. This system involves monitoring the evolution of several indicators that tend to exhibit an unusual behavior in the periods preceding a crisis. When an indicator exceeds a certain threshold value, this is interpreted as a warning "signal" that a currency crisis may take place within the following 24 months. The variables that have the best track record within this approach include exports, deviations of the real exchange rate from trend, the ratio of broad money to gross international reserves, output, and equity prices.

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal Staff Papers - International Monetary Fund.

Volume (Year): 45 (1998)
Issue (Month): 1 (March)
Pages: 1-48

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Handle: RePEc:pal:imfstp:v:45:y:1998:i:1:p:1-48

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References

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  1. Guillermo A. Calvo, 1995. "Varieties of Capital-Market Crises," Research Department Publications, Inter-American Development Bank, Research Department 4008, Inter-American Development Bank, Research Department.
  2. Reinhart, Carmen & Calvo, Sara, 1996. "Capital Flows to Latin America: Is There Evidence of Contagion Effects?”," MPRA Paper 7124, University Library of Munich, Germany.
  3. Blanco, Herminio & Garber, Peter M, 1986. "Recurrent Devaluation and Speculative Attacks on the Mexican Peso," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(1), pages 148-66, February.
  4. Garber, P.M. & Svensson, L.E.O., 1994. "The Operation and Collapse of Fixed Exchange Rate Regimes," Papers, Stockholm - International Economic Studies 588, Stockholm - International Economic Studies.
  5. Ceyla Pazarbasioglu & Inci Ötker, 1994. "Exchange Market Pressures and Speculative Capital Flows in Selected European Countries," IMF Working Papers, International Monetary Fund 94/21, International Monetary Fund.
  6. Ozkan, F Gulcin & Sutherland, Alan, 1995. "Policy Measures to Avoid a Currency Crisis," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 105(429), pages 510-19, March.
  7. Rudger Dornbusch & Ilan Goldfajn & Rodrigo O. Valdés, 1995. "Currency Crises and Collapses," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(2), pages 219-294.
  8. Dellas, Harris & Stockman, Alan, 1993. "Self-Fulfilling Expectations, Speculative Attack, and Capital Controls," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 25(4), pages 721-30, November.
  9. Frankel, Jeffrey A. & Rose, Andrew K., 1996. "Currency crashes in emerging markets: An empirical treatment," Journal of International Economics, Elsevier, Elsevier, vol. 41(3-4), pages 351-366, November.
  10. Flood, Robert & Marion, Nancy, 1997. "The size and timing of devaluations in capital-controlled economies," Journal of Development Economics, Elsevier, Elsevier, vol. 54(1), pages 123-147, October.
  11. Pierre-Richard Agenor & Jagdeep S. Bhandari & Robert P. Flood, 1991. "Speculative Attacks and Models of Balance-of-Payments Crises," NBER Working Papers 3919, National Bureau of Economic Research, Inc.
  12. Gerlach, Stefan & Smets, Frank, 1994. "Contagious Speculative Attacks," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1055, C.E.P.R. Discussion Papers.
  13. Blackburn, Keith & Sola, Martin, 1993. " Speculative Currency Attacks and Balance of Payments Crises," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 7(2), pages 119-44, June.
  14. Edin, P.A. & Vredin, A., 1991. "Devaluation Risk in Target Zones: Evidence from the Nordic Countries," Papers, Uppsala - Working Paper Series 1991g, Uppsala - Working Paper Series.
  15. Pierre-Richard Agénor & Jagdeep S. Bhandari & Robert P. Flood, 1992. "Speculative Attacks and Models of Balance of Payments Crises," IMF Staff Papers, Palgrave Macmillan, vol. 39(2), pages 357-394, June.
  16. Maurice Obstfeld, 1984. "Rational and Self-Fulfilling Balance-of-Payments Crises," NBER Working Papers 1486, National Bureau of Economic Research, Inc.
  17. Kamin, S.B., 1988. "Devaluation, External Balance, And Macroeconomic Performance: A Look At The Numbers," Princeton Studies in International Economics, International Economics Section, Departement of Economics Princeton University, 62, International Economics Section, Departement of Economics Princeton University,.
  18. Michael W. Klein & Nancy P. Marion, 1994. "Explaining the Duration of Exchange-Rate Pegs," NBER Working Papers 4651, National Bureau of Economic Research, Inc.
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