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The contribution of domestic and external factors to emerging market devaluation crises: an early warning systems approach

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  • Steven B. Kamin
  • John W. Schindler
  • Shawna L. Samuel
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    Abstract

    This paper uses Bayesian techniques to compare three definitions of optimality for the basic job search model: the standard income-maximizing definition, an approximation to the standard definition, and a simple alternative. The important role of prior choice in these comparisons is illustrated. Using natural conjugate priors to represent hypothetical samples of data, we find that the simple alternative is preferred to the standard definition of optimality. However, using priors constructed from findings in the literature, we are able to find some evidence in favor of the standard definition of optimality.

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    File URL: http://www.federalreserve.gov/pubs/ifdp/2001/711/default.htm
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    File URL: http://www.federalreserve.gov/pubs/ifdp/2001/711/ifdp711.pdf
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    Bibliographic Info

    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 711.

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    Date of creation: 2001
    Date of revision:
    Handle: RePEc:fip:fedgif:711

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    Related research

    Keywords: Developing countries ; Financial crises ; Econometric models;

    This paper has been announced in the following NEP Reports:

    References

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    1. Menzie D. Chinn, 1998. "Before the Fall: Were East Asian Currencies Overvalued?," NBER Working Papers 6491, National Bureau of Economic Research, Inc.
    2. Rogers, John H. & Wang, Ping, 1995. "Output, inflation, and stabilization in a small open economy: Evidence from Mexico," Journal of Development Economics, Elsevier, vol. 46(2), pages 271-293, April.
    3. Catherine A. Pattillo & Andrew Berg, 1998. "Are Currency Crises Predictable? a Test," IMF Working Papers 98/154, International Monetary Fund.
    4. Graciela Laura Kaminsky, 1997. "Leading Indicators of Currency Crises," IMF Working Papers 97/79, International Monetary Fund.
    5. Alexander W. Hoffmaister & Jorge Roldos, 1997. "Are Business Cycles Different in Asia and Latin America?," IMF Working Papers 97/9, International Monetary Fund.
    6. Jeffrey A. Frankel & Andrew K. Rose, 1996. "Currency crashes in emerging markets: an empirical treatment," International Finance Discussion Papers 534, Board of Governors of the Federal Reserve System (U.S.).
    7. Glick, R. & Moreno, R., 1999. "Money and Credit, Competitiveness, and Currency Crises in Asia and Latin America," Papers 99-01, Economisch Institut voor het Midden en Kleinbedrijf-.
    8. Ricardo Hausmann & Michael Gavin & Carmen Pagés-Serra & Ernesto H. Stein, 1999. "Financial Turmoil and Choice of Exchange Rate Regime," Research Department Publications 4170, Inter-American Development Bank, Research Department.
    9. Catherine A. Pattillo & Andrew Berg & Gian-Maria Milesi-Ferretti & Eduardo Borensztein, 2000. "Anticipating Balance of Payments Crises," IMF Occasional Papers 186, International Monetary Fund.
    10. Hali J. Edison, 2000. "Do indicators of financial crises work? an evaluation of an early warning system," International Finance Discussion Papers 675, Board of Governors of the Federal Reserve System (U.S.).
    11. Joseph Joyce & Linda Kamas, 1997. "The relative importance of foreign and domestic shocks to output and prices in Mexico and Colombia," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 133(3), pages 458-478, September.
    12. Galindo, Arturo J. & Maloney, William F., 2002. "Second moments in speculative attack models: panel evidence," Journal of International Economics, Elsevier, vol. 56(1), pages 97-129, January.
    13. Dani Rodrik & Andres Velasco, 1999. "Short-Term Capital Flows," NBER Working Papers 7364, National Bureau of Economic Research, Inc.
    14. Menzie D. Chinn & Michael P. Dooley & Sona Shrestha, 1999. "Latin America and East Asia in the Context of an Insurance Model of Currency Crises," NBER Working Papers 7091, National Bureau of Economic Research, Inc.
    15. Kruger, Mark & Osakwe, Patrick N. & Page, Jennifer, 1998. "Fundamentals, Contagion and Currency Crises: An Empirical Analysis," Working Papers 98-10, Bank of Canada.
    16. Steven B. Kamin & Oliver D. Babson, 1999. "The contributions of domestic and external factors to Latin American devaluation crises: an early warning systems approach," International Finance Discussion Papers 645, Board of Governors of the Federal Reserve System (U.S.).
    17. Shaghil Ahmed, 1999. "Sources of economic fluctuations in Latin America and implications for choice of exchange rate regimes," International Finance Discussion Papers 656, Board of Governors of the Federal Reserve System (U.S.).
    18. Ricardo Hausmann & Michael Gavin & Carmen Pagés-Serra & Ernesto H. Stein, 1999. "Financial Turmoil and the Choice of Exchange Rate Regime," IDB Publications 4128, Inter-American Development Bank.
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