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Prediction of Currency Crises: Case of Turkey

Author

Listed:
  • Mariano Roberto S

    (School of Economics and Social Sciences, Singapore Management University and Department of Economics)

  • Gultekin Bulent N

    (Wharton School, University of Pennsylvania)

  • Ozmucur Suleyman

    (University of Pennsylvania)

  • Shabbir Tayyeb

    (Univ of Pennsylvania)

  • Alper C. Emre

    (Department of Economics, Bogazici University)

Abstract

This paper explores the issue of constructing an economic predictive model of financial vulnerability through an alternative econometric methodology that addresses drawbacks in existing approaches. The methodology entails estimating a Markov regime switching model of exchange rate movements, with time-varying transition probabilities. Experiments with monthly and weekly models indicate that real exchange rate, foreign exchange reserves and domestic credit/deposit ratio are the most important determinants of financial vulnerability. These variables should be observed very closely by researchers and policy makers in order to determine if the country is heading for financially difficult times.

Suggested Citation

  • Mariano Roberto S & Gultekin Bulent N & Ozmucur Suleyman & Shabbir Tayyeb & Alper C. Emre, 2004. "Prediction of Currency Crises: Case of Turkey," Review of Middle East Economics and Finance, De Gruyter, vol. 2(2), pages 1-21, August.
    • Handle: RePEc:bpj:rmeecf:v:2:y:2004:i:2:n:1
    DOI: 10.2202/1475-3693.1022
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    References listed on IDEAS

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    Cited by:

    1. Omotosho, Babatunde S., 2015. "Is Real Exchange Rate Misalignment a Leading Indicator of Currency Crises in Nigeria?," MPRA Paper 98353, University Library of Munich, Germany.
    2. Wajih Khallouli & Mahmoud Sami Nabi, 2010. "Financial Crises’ Prevention and Recovery," Working Papers 529, Economic Research Forum, revised 06 Jan 2010.
    3. Khallouli, Wajih & Sandretto, René, 2012. "Testing for “Contagion” of the Subprime Crisis on the Middle East and North African Stock Markets: A Markov Switching EGARCH Approach," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 27, pages 134-166.
    4. Mete Feridun, 2009. "Determinants of Exchange Market Pressure in Turkey: An Econometric Investigation," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 45(2), pages 65-81, March.
    5. Wajih Khallouli & Rene Sandretto, 2011. "Testing for “Contagion” of the Subprime Crisis on the Middle East And North African Stock Markets: A Markov Switching EGARCH Approach," Working Papers 609, Economic Research Forum, revised 08 Jan 2011.
    6. El-Shagi, M. & Knedlik, T. & von Schweinitz, G., 2013. "Predicting financial crises: The (statistical) significance of the signals approach," Journal of International Money and Finance, Elsevier, vol. 35(C), pages 76-103.
    7. Ari, Ali, 2012. "Early warning systems for currency crises: The Turkish case," Economic Systems, Elsevier, vol. 36(3), pages 391-410.
    8. Salih Turan Katircioglu & Mete Feridun, 2011. "Do macroeconomic fundamentals affect exchange market pressure? Evidence from bounds testing approach for Turkey," Applied Economics Letters, Taylor & Francis Journals, vol. 18(3), pages 295-300.
    9. Nuri Yildirim & Huseyin Tastan, 2012. "Capital Flows and Economic Growth across Spectral requencies: Evidence from Turkey," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 59(4), pages 441-462, September.
    10. Mete FERIDUN, 2008. "Currency Crises In Emerging Markets: The Case Of Post‐Liberalization Turkey," The Developing Economies, Institute of Developing Economies, vol. 46(4), pages 386-427, December.
    11. Panayotis Michaelides & Mike Tsionas & Panos Xidonas, 2020. "A Bayesian Signals Approach for the Detection of Crises," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 18(3), pages 551-585, September.
    12. Balaga Mohana Rao & Puja Padhi, 2019. "Identifying the Early Warnings of Currency Crisis in India," Foreign Trade Review, , vol. 54(4), pages 269-299, November.
    13. Joscha Beckmann & Robert L. Czudaj, 2023. "The role of expectations for currency crisis dynamics—The case of the Turkish lira," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 42(3), pages 625-642, April.

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