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Leading Indicators of Currency Crises

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  • Reinhart, Carmen
  • Kaminsky, Graciela
  • Lizondo, Saul

Abstract

This papers examines the empirical literature on currency crises and proposes a specific early warning system. This system involves monitoring the evolution of several indicators that tend to exhibit unusual behaviorin the periods preceding a crisis. When an indicator exceeds a certain threshold value, this is interpreted as a warning "signal" that a currency crisis may take place within the following 24 months. The variables that have the best track record within this approach include exports, deviations of the real exchange rate from trend, the ratio of broad money to international reserves, output, and equity prices.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6981.

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Date of creation: 1998
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Publication status: Published in IMF Staff Papers 1.45(1998): pp. 1-48
Handle: RePEc:pra:mprapa:6981

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Keywords: financial crisis; currency; indicators; banking;

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References

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  1. Blackburn, Keith & Sola, Martin, 1993. " Speculative Currency Attacks and Balance of Payments Crises," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 7(2), pages 119-44, June.
  2. Flood, Robert & Marion, Nancy, 1997. "The size and timing of devaluations in capital-controlled economies," Journal of Development Economics, Elsevier, Elsevier, vol. 54(1), pages 123-147, October.
  3. Robert P. Flood & Jagdeep S. Bhandari & Pierre-Richard Agénor, 1991. "Speculative Attacks and Models of Balance of Payments Crises," IMF Working Papers 91/99, International Monetary Fund.
  4. Blanco, Herminio & Garber, Peter M, 1986. "Recurrent Devaluation and Speculative Attacks on the Mexican Peso," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(1), pages 148-66, February.
  5. Klein, Michael W. & Marion, Nancy P., 1997. "Explaining the duration of exchange-rate pegs," Journal of Development Economics, Elsevier, Elsevier, vol. 54(2), pages 387-404, December.
  6. Dellas, H. & Stockman, A.C., 1988. "Self-Fullfilling Expectations, Speculative Attacks And Capital Controls," RCER Working Papers 138, University of Rochester - Center for Economic Research (RCER).
  7. Pierre-Richard Agénor & Jagdeep S. Bhandari & Robert P. Flood, 1992. "Speculative Attacks and Models of Balance of Payments Crises," IMF Staff Papers, Palgrave Macmillan, vol. 39(2), pages 357-394, June.
  8. Obstfeld, Maurice, 1986. "Rational and Self-fulfilling Balance-of-Payments Crises," American Economic Review, American Economic Association, American Economic Association, vol. 76(1), pages 72-81, March.
  9. Garber, P.M. & Svensson, L.E.O., 1994. "The Operation and Collapse of Fixed Exchange Rate Regimes," Papers, Stockholm - International Economic Studies 588, Stockholm - International Economic Studies.
  10. Edin, Per-Anders & Vredin, Anders, 1993. "Devaluation Risk in Target Zones: Evidence from the Nordic Countries," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 103(416), pages 161-75, January.
  11. 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.
  12. Jeffrey A. Frankel & Andrew K. Rose, 1996. "Currency crashes in emerging markets: an empirical treatment," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 534, Board of Governors of the Federal Reserve System (U.S.).
  13. Ceyla Pazarbasioglu & Inci Ötker, 1994. "Exchange Market Pressures and Speculative Capital Flows in Selected European Countries," IMF Working Papers 94/21, International Monetary Fund.
  14. Guillermo A. Calvo, 1995. "Varieties of Capital-Market Crises," IDB Publications 5721, Inter-American Development Bank.
  15. Gerlach, Stefan & Smets, Frank, 1994. "Contagious Speculative Attacks," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1055, C.E.P.R. Discussion Papers.
  16. Ozkan, F Gulcin & Sutherland, Alan, 1995. "Policy Measures to Avoid a Currency Crisis," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 105(429), pages 510-19, March.
  17. Rudger Dornbusch & Ilan Goldfajn & Rodrigo O. Valdés, 1995. "Currency Crises and Collapses," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(2), pages 219-294.
  18. Kamin, S.B., 1988. "Devaluation, External Balance, And Macroeconomic Performance: A Look At The Numbers," Princeton Studies in International Economics, International Economics Section, Departement of Economics Princeton University, 62, International Economics Section, Departement of Economics Princeton University,.
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