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How to evaluate an Early Warning System? Towards a United Statistical Framework for Assessing Financial Crises Forecasting Methods

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Author Info

  • Candelon Bertrand
  • Dumitrescu Elena-Ivona
  • Hurlin Christophe

    (METEOR)

Abstract

This paper proposes a new statistical framework originating from the traditional credit-scoring literature, to evaluate currency crises Early Warning Systems (EWS). Based on an assessment of the predictive power of panel logit and Markov frameworks, the panel logit model is outperforming the Markov switching specitcations. Furthermore, the introduction of forward-looking variables clearly improves the forecasting properties of the EWS. This improvement confirms the adequacy of the second generation crisis models in explaining the occurrence of crises.

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Bibliographic Info

Paper provided by Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR) in its series Research Memorandum with number 046.

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Date of creation: 2010
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Handle: RePEc:unm:umamet:2010046

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Postal: P.O. Box 616, 6200 MD Maastricht
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Web page: http://www.maastrichtuniversity.nl/
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Keywords: macroeconomics ;

References

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Cited by:
  1. Mohammad Karimi & Marcel-Cristian Voia, 2011. "Empirics of Currency Crises: A Duration Analysis Approach," Carleton Economic Papers 11-11, Carleton University, Department of Economics.

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