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Forecasting currency crises with threshold models

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  • Terence T.L. Chong
  • Isabel K. Yan

Abstract

This paper develops a multi-factor threshold model to provide warning signals for currency crises. Using a panel data set for 16 economies over 20 years, it is found that the ratio of short-term external liabilities to reserves and the lending rate differential are valid threshold variables that can segregate “turbulent” from “tranquil” regime. The corresponding threshold estimates can provide useful pivotal points for governments to formulate regulatory policy measures to reduce the risk of financial crises.

Suggested Citation

  • Terence T.L. Chong & Isabel K. Yan, 2018. "Forecasting currency crises with threshold models," International Economics, CEPII research center, issue 156, pages 156-174.
    • Handle: RePEc:cii:cepiie:2018-q4-156-12
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    Cited by:

    1. Qi, Qi & Long, Chao & Wu, Jianzhong & Yu, James, 2018. "Impacts of a medium voltage direct current link on the performance of electrical distribution networks," Applied Energy, Elsevier, vol. 230(C), pages 175-188.
    2. Nocera, Silvio & Fabio, Alberto & Cavallaro, Federico, 2020. "The adoption of grid transit networks in non-metropolitan contexts," Transportation Research Part A: Policy and Practice, Elsevier, vol. 132(C), pages 256-272.

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    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General

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