IDEAS home Printed from https://ideas.repec.org/a/cem/jaecon/v9y2006n2p381-402.html
   My bibliography  Save this article

Central bank´s value at risk and financial crises: An application to the 2001 Argentine crisis

Author

Abstract

Blejer and Schumacher (1999) were the first to suggest that Central Bank’s Value at Risk (VaR), a widely used composite measure of potential portfolio losses in the corporate sector, could be used as an early warning indicator of financial crises. We extend their research in two aspects. First, we develop an operational model to calculate Central Bank’s VaR and illustrate the methodology using data from the recent financial crisis in Argentina. Second, we compare the predictive performance of diverse measures based on the VaR approach to that of another well known early warning system, the signals approach, and several univariate leading indicators. The results reveal a strong relationship between the measures proposed and the crisis. Furthermore, one of the measures provides higher accuracy and announces the probability of a crisis sooner than the competing indicators.

Suggested Citation

  • Diego Nocetti, 2006. "Central bank´s value at risk and financial crises: An application to the 2001 Argentine crisis," Journal of Applied Economics, Universidad del CEMA, vol. 9, pages 381-402, November.
  • Handle: RePEc:cem:jaecon:v:9:y:2006:n:2:p:381-402
    as

    Download full text from publisher

    File URL: http://www4.cema.edu.ar/pjae/m/132Nocetti200611
    Download Restriction: Access to full text is restricted to subscribers. Individual articles may be purchased through PayPal.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Giovannetti, G., 1990. "A Survey of Recente Empirical Tests of the Purchasing Power Parity Hypothesis," Papers 1, Roma "la Sapienza" - Scienze Economiche.
    2. Graciela L. Kaminsky, 1998. "Currency and banking crises: the early warnings of distress," International Finance Discussion Papers 629, Board of Governors of the Federal Reserve System (U.S.).
    3. Ho, Lan-Chih & Burridge, Peter & Cadle, John & Theobald, Michael, 2000. "Value-at-risk: Applying the extreme value approach to Asian markets in the recent financial turmoil," Pacific-Basin Finance Journal, Elsevier, vol. 8(2), pages 249-275, May.
    4. Alexandra Lai, 2002. "Modelling Financial Instability: A Survey of the Literature," Staff Working Papers 02-12, Bank of Canada.
    5. Pownall, Rachel A. J. & Koedijk, Kees G., 1999. "Capturing downside risk in financial markets: the case of the Asian Crisis," Journal of International Money and Finance, Elsevier, vol. 18(6), pages 853-870, December.
    6. Graciela Kaminsky & Saul Lizondo & Carmen M. Reinhart, 1998. "Leading Indicators of Currency Crises," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 1-48, March.
    7. Frankel, Jeffrey A. & Rose, Andrew K., 1996. "Currency crashes in emerging markets: An empirical treatment," Journal of International Economics, Elsevier, vol. 41(3-4), pages 351-366, November.
    8. Duffee, Gregory R, 1999. "Estimating the Price of Default Risk," Review of Financial Studies, Society for Financial Studies, vol. 12(1), pages 197-226.
    9. John C. Cox & Jonathan E. Ingersoll Jr. & Stephen A. Ross, 2005. "A Theory Of The Term Structure Of Interest Rates," World Scientific Book Chapters,in: Theory Of Valuation, chapter 5, pages 129-164 World Scientific Publishing Co. Pte. Ltd..
    10. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Farhan Akbar & Thierry Chauveau, 2009. "An Analysis of Exchange Rate Risk Exposure Related to Public Debt Portfolio of Pakistan: Beyond Delta-Normal VAR Approach," SBP Working Paper Series 30, State Bank of Pakistan, Research Department.
    2. Shah Hussain, 2009. "Misalignment of Real Exchange Rate with its Equilibrium Path: Case of Pakistan," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 5, pages 1-14.
    3. repec:bla:econpa:v:36:y:2017:i:4:p:444-458 is not listed on IDEAS
    4. Yucel, Eray, 2011. "A Review and Bibliography of Early Warning Models," MPRA Paper 32893, University Library of Munich, Germany.

    More about this item

    Keywords

    currency crises; Argentina; value at risk;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cem:jaecon:v:9:y:2006:n:2:p:381-402. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Valeria Dowding). General contact details of provider: http://edirc.repec.org/data/cemaaar.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.