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Assessing financial vulnerability, an early warning system for emerging markets: Introduction

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  • Reinhart, Carmen
  • Goldstein, Morris
  • Kaminsky, Graciela

Abstract

This study analyzes and provides empirical tests of early warning indicators of banking and currency crises in emerging economies. The aim is to identify key empirical regularities in the run-up to banking and currency crises that would enable officials and private market participants to recognize vulnerability to financial crises at an earlier stage. This, in turn, should make it easier to motivate the corrective policy actions that would prevent such crises from actually taking place. Interest in identifying early warning indicators of financial crises has soared of late, stoked primarily by two factors. First, there is increasing recognition that banking and currency crises can be extremely costly to the countries in which they originate; in addition, these crises often spillover via a variety of international channels to increase the vulnerability of other countries to financial crisis. The second reason for the increased interest in early warning indicators of financial crises is that there is accumulating evidence that two of the most closely watched “market indicators” of default and currency risks--namely, interest rate spreads and changes in credit ratings--frequently do not provide much advance warning of currency and banking crises.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 13629.

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Date of creation: 2000
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Handle: RePEc:pra:mprapa:13629

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Keywords: financial crises bank runs currency crashes early warning indicators;

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References

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  1. Kamin, Steve B. & Rogers, John H., 2000. "Output and the real exchange rate in developing countries: an application to Mexico," Journal of Development Economics, Elsevier, Elsevier, vol. 61(1), pages 85-109, February.
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  8. Carmen M. Reinhart & Sara Calvo, 1996. "Capital Flows to Latin America: Is There Evidence of Contagion Effects?," Peterson Institute Press: Chapters, Peterson Institute for International Economics, in: Guillermo A. Calvo & Morris Goldstein & Eduard Hochreiter (ed.), Private Capital Flows to Emerging Markets After the Mexican Crisis, pages 151-171 Peterson Institute for International Economics.
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  26. repec:fth:inadeb:318 is not listed on IDEAS
  27. Fischer, Stanley, 1993. "The role of macroeconomic factors in growth," Journal of Monetary Economics, Elsevier, Elsevier, vol. 32(3), pages 485-512, December.
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