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Measuring and predicting currency disturbances in Croatia: the “signals” approach

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  • Ahec Šonje, Amina
  • Babić, Ante

Abstract

The “signals” approach is used in constructing an effective system of early warning indicators heralding currency disturbances. This sistem monitors the behaviour of various macroeconomic and financial variables that tend to exhibit an unusual in the periods preceding a disturbance or crisis. The paper also proposes composite leading indicators comprising the best signal indicators. The performance of the indicators reveals that the two disturbances were different: the 1999 one came at the end of a banking crisis, while the 2001 disturbance was brought about by a combination of the domestic monetary relaxation and partial capital account liberalization. Since Croatia signed a Stabilization and Association Agreeement with the EU that foresees further capital account liberalization, this system of early warning indicators can help the Croatian National Bank and other relevant policymakers along the way.

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  • Ahec Šonje, Amina & Babić, Ante, 2002. "Measuring and predicting currency disturbances in Croatia: the “signals” approach," MPRA Paper 83137, University Library of Munich, Germany, revised Apr 2002.
    • Handle: RePEc:pra:mprapa:83137
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    More about this item

    Keywords

    currency crises; the “signals” approach; early warning indicators; Croatia;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

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