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Measuring potential vulnerabilities in emerging market economies

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  • Marc Klau
  • John Hawkins
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    Abstract

    This paper describes some experiments with the construction of relatively simple indices which summarise in a systematic and objective way information about emerging economies currently under pressure in financial markets and those vulnerable to such pressure in the future. A survey of the literature suggests financial crises are typically preceded by overvalued exchange rates, inadequate international reserves, recessions and excessive credit growth. These indicators and others, such as short-term external debt, which appear more important in recent crises are included in the summary indices of vulnerability. The vulnerability indices are shown to have modest predictive power for the pressure index but are far from conclusive in themselves.

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    Bibliographic Info

    Paper provided by Bank for International Settlements in its series BIS Working Papers with number 91.

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    Length: 46 pages
    Date of creation: Oct 2000
    Date of revision:
    Handle: RePEc:bis:biswps:91

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    1. Reinhart, Carmen & Kaminsky, Graciela & Lizondo, Saul, 1998. "Leading Indicators of Currency Crises," MPRA Paper 6981, University Library of Munich, Germany.
    2. Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany.
    3. Bertrand, M. & Mullainathan, S., 1998. "Executive Compensation and Incentives: the Impact of Takeover Legislation," Papers, Princeton, Woodrow Wilson School - Public and International Affairs 202, Princeton, Woodrow Wilson School - Public and International Affairs.
    4. Barry Eichengreen & Andrew K. Rose, 1998. "Staying Afloat When the Wind Shifts: External Factors and Emerging-Market Banking Crises," NBER Working Papers 6370, National Bureau of Economic Research, Inc.
    5. Christian B. Mulder & Matthieu Bussière, 1999. "External Vulnerability in Emerging Market Economies," IMF Working Papers 99/88, International Monetary Fund.
    6. Morris Goldstein & Carmen M. Reinhart, 2000. "Assessing Financial Vulnerability: An Early Warning System for Emerging Markets," Peterson Institute Press: All Books, Peterson Institute for International Economics, Peterson Institute for International Economics, number 100, July.
    7. Barry Eichengreen & Andrew K. Rose & Charles Wyplosz, 1996. "Contagious Currency Crises," NBER Working Papers 5681, National Bureau of Economic Research, Inc.
    8. Kruger, Mark & Osakwe, Patrick N. & Page, Jennifer, 1998. "Fundamentals, Contagion and Currency Crises: An Empirical Analysis," Working Papers 98-10, Bank of Canada.
    9. Burkart, O. & Coudert, V., 2000. "Leading Indicators of Currency Crises in Emerging Economies," Working papers, Banque de France 74, Banque de France.
    10. Reinhart, Carmen & Goldstein, Morris & Kaminsky, Graciela, 2000. "Assessing financial vulnerability, an early warning system for emerging markets: Introduction," MPRA Paper 13629, University Library of Munich, Germany.
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