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An optimal early warning system for currency crises under model uncertainty

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  • Mamdouh Abdelmoula M. Abdelsalama

    (Minufia University, Egypt)

  • Hany Abdel-Latif

    (Swansea University, UK)

Abstract

This paper assesses a number of early warning (EWS) models of financial crises with the aim of proposing an optimal model that can predict the incidence of a currency crisis in developing countries. For this purpose, we employ the dynamic model averaging (DMA) and equal weighting (EW) approaches to combine forecasts from individual models allowing for time varying weights. Taking Egypt as a case study and focusing only on currency crises, our findings show that combining forecasts (DMA- and EW-based EWS) models which account for model uncertainty perform better than other competing models in both in-sample and out-of-sample forecasts.

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  • Mamdouh Abdelmoula M. Abdelsalama & Hany Abdel-Latif, 2019. "An optimal early warning system for currency crises under model uncertainty," Working Papers 1334, Economic Research Forum, revised 21 Aug 2019.
    • Handle: RePEc:erg:wpaper:1334
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    Cited by:

    1. Maria Alina Carataș & Elena Cerasela Spătariu & Raluca Andreea Trandafir, 2020. "Embracing Uncertainty During the Crisis," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(1), pages 38-43, August.

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