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Predicting Financial Vulnerability in Malaysia: Evidence From the Signals Approach

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  • Tai-Hock Kuek
  • Chin-Hong Puah
  • M. Affendy Arip

Abstract

This paper aims to investigate Malaysia¡¯s vulnerability to a financial crisis. The methodology employed is an extension of the signals approach based on the original work of Kaminsky and Reinhart (1999). By studying the period from 2000M1 to 2016M9, we construct a financial vulnerability indicator (FVI) to measure the development of vulnerabilities in the Malaysian financial system. Our empirical findings unveil that the causes of crises are multidimensional. Notably, economic slowdown, decline in stock price and weak exports contain good predictive power in assessing financial vulnerability to a crisis. This study highlights the significance of internal and external macroeconomic conditions in determining a country¡¯s vulnerability.

Suggested Citation

  • Tai-Hock Kuek & Chin-Hong Puah & M. Affendy Arip, 2019. "Predicting Financial Vulnerability in Malaysia: Evidence From the Signals Approach," Research in World Economy, Research in World Economy, Sciedu Press, vol. 10(3), pages 89-98, December.
    • Handle: RePEc:jfr:rwe111:v:10:y:2019:i:3:p:89-98
    DOI: 10.5430/rwe.v10n3p89
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    References listed on IDEAS

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