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From Transition Crises to Macroeconomic Stability? Lessons from a Crises Early Warning System for Eastern European and CIS Countries

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  • Kristina Kittelmann
  • Marcel Tirpak
  • Rainer Schweickert
  • Lúcio Vinhas de Souza

Abstract

This paper uses a Markov regime-switching model to assess the vulnerability of a series of Central and Eastern European countries (i.e. Czech Republic, Hungary, Slovak Republic) and two CIS countries (i.e., Russia and Ukraine) during the period 1993–2004. For the new EU member states in Central and Eastern Europe, the results of our model show that the majority of crises in those countries can be explained by inconsistencies in the domestic policy mix and by the deterioration of macroeconomic fundamentals, as emphasized by first generation crises models, while for the CIS countries analysed, financial vulnerability type indicators were the most relevant, i.e., indicators connected with the second and third generation of crisis model better explain the vulnerability of these countries. Additionally, the set of indicators choosen by our model is rather heterogenous, supporting the superiority of a country-by-country approach.

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1269.

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Length: 21 pages
Date of creation: Feb 2006
Date of revision:
Handle: RePEc:kie:kieliw:1269

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Keywords: EU; Central and Eastern Europe; CIS; early warning system; currency crisis; Markov switching;

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Citations

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Cited by:
  1. El-Shagi, M. & Knedlik, T. & von Schweinitz, G., 2013. "Predicting financial crises: The (statistical) significance of the signals approach," Journal of International Money and Finance, Elsevier, vol. 35(C), pages 76-103.
  2. Tobias Knedlik & Rolf Scheufele, 2007. "Three methods of forecasting currency crises: Which made the run in signaling the South African currency crisis of June 2006?," IWH Discussion Papers 17, Halle Institute for Economic Research.
  3. Sorin BURNETE, 2009. "Emerging Economies Faced With The Downside Of Financial Globalization: Hedges And Way Outs," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 3, pages 41-55, May.
  4. Mayes, David G & Korhonen, Vesa, 2007. "The CIS – does the regional hegemon facilitate monetary integration?," BOFIT Discussion Papers 16/2007, Bank of Finland, Institute for Economies in Transition.
  5. Cevik, Emrah Ismail & Dibooglu, Sel & Kutan, Ali M., 2013. "Measuring financial stress in transition economies," Journal of Financial Stability, Elsevier, vol. 9(4), pages 597-611.

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