An "almost-too-late" warning mechanism for currency crises
AbstractWe propose exploiting the term structure of relative interest rates to obtain estimates of changes in the timing of a currency crisis as perceived by market participants. Our indicator can be used to evaluate the relative probability of a crisis occurring in one week as compared to a crisis happening after one week but in less than a month. We give empirical evidence that the indicator performs well for two important currency crises in Eastern Europe: the crisis in the Czech Republic in 1997 and the Russian crisis in 1998.
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Bibliographic InfoPaper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 4/2007.
Length: 27 pages
Date of creation: 02 Mar 2007
Date of revision:
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More information through EDIRC
currency crisis; term structure of interest rates; transition economies;
Other versions of this item:
- Jesus Crespo Cuaresma & Tomas Slacik, 2010. "An almost-too-late warning mechanism for currency crises," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 18(1), pages 123-141, 01.
- Jesus Crespo Cuaresma & Tomas Slacik, 2007. "An "Almost-Too-Late" Warning Mechanism For Currency Crises," Working Papers 2007-10, Faculty of Economics and Statistics, University of Innsbruck.
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-03-10 (All new papers)
- NEP-IFN-2007-03-10 (International Finance)
- NEP-MAC-2007-03-10 (Macroeconomics)
- NEP-MON-2007-03-10 (Monetary Economics)
- NEP-TRA-2007-03-10 (Transition Economics)
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