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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. Graciela Laura Kaminsky, 1999. "Currency and Banking Crises," IMF Working Papers 99/178, International Monetary Fund.
  2. Jason Furman & Joseph E. Stiglitz, 1998. "Economic Crises: Evidence and Insights from East Asia," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 1-136.
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  4. Kaminsky, Graciela L & Reinhart, Carmen M, 1998. "Financial Crises in Asia and Latin America: Then and Now," American Economic Review, American Economic Association, vol. 88(2), pages 444-48, May.
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  8. Andrew Berg & Catherine Pattillo, 1999. "Are Currency Crises Predictable? A Test," IMF Staff Papers, Palgrave Macmillan, vol. 46(2), pages 1.
  9. Gerard Caprio & Patrick Honohan, 2008. "Banking Crises," Department of Economics Working Papers 2008-07, Department of Economics, Williams College.
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  13. 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, vol. 61(1), pages 85-109, February.
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  32. repec:fth:inadeb:318 is not listed on IDEAS
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