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Stanovení náchylnosti ekonomiky k nadměrným tlakům na měnový kurs
[Vulnerabilities in an economy to extensive pressures on the exchange rate]

Author

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  • Michal Pazour

Abstract

The article aims at introducing new methodology for recognizing suitable indicators to monitor the potential risk of extensive pressure on the exchange rate (early warning indicators) and for identifying vulnerabilities in an economy to this pressure reflected by simultaneous negative development of the observed early warning indicators. The construction of the empirical model is based on the combination of the signal approach and the binary model of behaviour. This model focuses on both strong and increased pressure on exchange rate and the parameters are adjusted to the Czech environment. The results indicate that the most significant early warning indicator for the Czech economy is the gap between current account deficit and foreign direct investment and further M2 to foreign exchange ratio, GDP growth and export growth. In total the model identified correctly 72 per cent periods of increased vulnerability of the Czech economy to excessive devaluation pressure. At the same time it identified correctly 78 per cent of tranquil periods. This methodology constitutes an innovative approach, which needs a further verification.

Suggested Citation

  • Michal Pazour, 2008. "Stanovení náchylnosti ekonomiky k nadměrným tlakům na měnový kurs [Vulnerabilities in an economy to extensive pressures on the exchange rate]," Politická ekonomie, Prague University of Economics and Business, vol. 2008(5), pages 598-620.
    • Handle: RePEc:prg:jnlpol:v:2008:y:2008:i:5:id:654:p:598-620
    DOI: 10.18267/j.polek.654
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    References listed on IDEAS

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    1. Marc Klau & John Hawkins, 2000. "Measuring potential vulnerabilities in emerging market economies," BIS Working Papers 91, Bank for International Settlements.
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    More about this item

    Keywords

    exchange rate; Central and Eastern Europe; currency crises; early warning; empirical models;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

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