Fundamental pitfalls of exchange market pressure-based approaches to identification of currency crises
This study seeks to demonstrate that the identification of crisis episodes based on commonly applied exchange market pressure (EMP) indices, namely, Eichengreen, Rose and Wyplosz [Eichengreen, B., Rose, A., and Wyplosz, C., 1995, Exchange Market Mayhem: The Antecedents and Aftermaths of Speculative Attacks, Economic Policy 21 (October), 249-312.], Sachs, Tornell and Velasco [Sachs, J.D., Tornel, A., and Velasco, A., 1996, Financial Crises in Emerging Markets: The Lessons From 1995, Brooking Papers on Economic Activity 1, 147-215.], and Kaminsky, Lizondo and Reinhart [Kaminsky, G., Lizondo, S., and Reinhart, C., 1998, Leading Indicators of Currency Crises, IMF Staff Paper 45, 1 (March), 1-48.] are highly sensitive to the choice of: a) the weighting scheme for each component of the EMP index; and b) the statistical parametric assumption used in the constructions of crisis thresholds. To highlight further some of the potential consequences of these two pitfalls in identifying crisis episodes, this paper employs a number of possible alternative approaches to measure the exchange market pressure.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Graciela Laura Kaminsky, 1997.
"Leading Indicators of Currency Crises,"
IMF Working Papers
97/79, International Monetary Fund.
- Reinhart, Carmen & Kaminsky, Graciela & Lizondo, Saul, 1998. "Leading Indicators of Currency Crises," MPRA Paper 6981, University Library of Munich, Germany.
- Kaminsky, Graciela & Lizondo, Saul & Reinhart, Carmen M., 1997. "Leading indicators of currency crises," Policy Research Working Paper Series 1852, The World Bank.
- Jeffrey A. Frankel & Andrew K. Rose, 1996.
"Currency crashes in emerging markets: an empirical treatment,"
International Finance Discussion Papers
534, Board of Governors of the Federal Reserve System (U.S.).
- 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.
- Jeffrey Sachs & Aaron Tornell & Andres Velasco, 1996.
"Financial Crises in Emerging Markets: The Lessons from 1995,"
Harvard Institute of Economic Research Working Papers
1759, Harvard - Institute of Economic Research.
- Jeffrey D. Sachs & Aaron Tornell & Andrés Velasco, 1996. "Financial Crises in Emerging Markets: The Lessons from 1995," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 147-216.
- Jeffrey Sachs & Aaron Tornell & Andres Velasco, 1996. "Financial Crises in Emerging Markets: The Lessons from 1995," NBER Working Papers 5576, National Bureau of Economic Research, Inc.
- Morris Goldstein & Carmen M. Reinhart, 2000. "Assessing Financial Vulnerability: An Early Warning System for Emerging Markets," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 100.
- Pozo, Susan & Amuedo-Dorantes, Catalina, 2003. "Statistical distributions and the identification of currency crises," Journal of International Money and Finance, Elsevier, vol. 22(4), pages 591-609, August.
- Graciela L. Kaminsky & Carmen M. Reinhart, 1996.
"The twin crises: the causes of banking and balance-of-payments problems,"
International Finance Discussion Papers
544, Board of Governors of the Federal Reserve System (U.S.).
- Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
- Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany.
- Ramon Moreno, 1995.
"Macroeconomic behavior during periods of speculative pressure or realignment: evidence from Pacific Basin economies,"
Pacific Basin Working Paper Series
95-05, Federal Reserve Bank of San Francisco.
- Ramon Moreno, 1995. "Macroeconomic behavior during periods of speculative pressure or realignment: evidence from Pacific Basin economies," Economic Review, Federal Reserve Bank of San Francisco, pages 3-16.
- Huisman, Ronald, et al, 2001. "Tail-Index Estimates in Small Samples," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(2), pages 208-16, April.
- Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March.
- Eichengreen, Barry & Rose, Andrew & Wyplosz, Charles, 1996. " Contagious Currency Crises: First Tests," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(4), pages 463-84, December.
- Andrew Berg & Eduardo Borensztein & Catherine A. Pattillo, 2004.
"Assessing Early Warning Systems: How Have they Worked in Practice?,"
IMF Working Papers
04/52, International Monetary Fund.
- Andrew Berg & Eduardo Borensztein & Catherine Pattillo, 2005. "Assessing Early Warning Systems: How Have They Worked in Practice?," IMF Staff Papers, Palgrave Macmillan, vol. 52(3), pages 5.
- Michael Chui, 2002. "Leading indicators of balance-of-payments crises: a partial review," Bank of England working papers 171, Bank of England.
- Hamilton, James D., 1988. "Rational-expectations econometric analysis of changes in regime : An investigation of the term structure of interest rates," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 385-423.
When requesting a correction, please mention this item's handle: RePEc:eee:reveco:v:17:y:2008:i:3:p:345-365. 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: (Zhang, Lei)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 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.