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Politically generated uncertainty and currency crises: Theory, tests, and forecasts

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  • Leblang, David
  • Satyanath, Shanker

Abstract

While it is widely acknowledged that political factors contribute to currency crises there have been few efforts at using political variables to improve crisis forecasts. We discuss ways in which political factors can be incorporated into theoretical models of crises, and develop testable hypotheses relating variations in political variables to variations in the probability of a currency crisis. We show that the incorporation of political variables into diverse crisis models substantially improves their out-of-sample predictive performance.

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  • Leblang, David & Satyanath, Shanker, 2008. "Politically generated uncertainty and currency crises: Theory, tests, and forecasts," Journal of International Money and Finance, Elsevier, vol. 27(3), pages 480-497, April.
  • Handle: RePEc:eee:jimfin:v:27:y:2008:i:3:p:480-497
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    1. repec:wsi:jicepx:v:08:y:2017:i:01:n:s1793993317500041 is not listed on IDEAS
    2. Sandro C. Andrade & Emanuel Kohlscheen, 2010. "Pessimistic Foreign Investors and Turmoil in Emerging Markets: the case of Brazil in 2002," Working Papers Series 211, Central Bank of Brazil, Research Department.
    3. Zeynep KARACOR & Korhan GOKMENOGLU, 2012. "Predictability Of Financial Crises: Testing K.R.L. Model In The Case Of Turkey," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 2, pages 5-16, June.
    4. Omar Mahmoud, Toman & Trebesch, Christoph, 2010. "The economics of human trafficking and labour migration: Micro-evidence from Eastern Europe," Journal of Comparative Economics, Elsevier, vol. 38(2), pages 173-188, June.
    5. Omar Mahmoud, Toman, 2010. "Shocks, income diversification and welfare in developing and transition countries," Open Access Publications from Kiel Institute for the World Economy 59754, Kiel Institute for the World Economy (IfW).
    6. Alireza Tamadonnejad & Aisyah Abdul-Rahman & Mariani Abdul-Majid & Mansor Jusoh, 2017. "The evaluation of East Asian banks by considering economic and political conditions as well as country risk," International Economics and Economic Policy, Springer, vol. 14(1), pages 27-41, January.
    7. Omar Mahmoud, Toman & Trebesch, Christoph, 2009. "The economic drivers of human trafficking: micro-evidence from five Eastern European countries," Kiel Working Papers 1480, Kiel Institute for the World Economy (IfW).

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