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Can Macroeconomic Indicators Predict a Currency Crisis? Evidence from Selected Southeast Asian Countries

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  • Saksit Budsayaplakorn
  • Sel Dibooglu
  • Ike Mathur

Abstract

This paper examines the probability of currency crises using a signal approach and a multivariate probit model. The results indicate that the signal approach can provide an effective warning system despite its nonparametric nature. The top three indicators that are useful in anticipating crises include international reserves, stock market indices, and gross domestic product (GDP), in that order. Excess money balances and the ratio of domestic credit to GDP are significant and have positive correlation with the probability of a crisis. The growth rate of exports and the stock indices are significant and have a negative relationship with a crisis probability. Overall, the results indicate that government policies, the macroeconomic environment, and investor panic/self-fulfilling expectations all play a role in the making of a crisis.

Suggested Citation

  • Saksit Budsayaplakorn & Sel Dibooglu & Ike Mathur, 2010. "Can Macroeconomic Indicators Predict a Currency Crisis? Evidence from Selected Southeast Asian Countries," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 46(6), pages 5-21, November.
  • Handle: RePEc:mes:emfitr:v:46:y:2010:i:6:p:5-21
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    Citations

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    Cited by:

    1. Hegerty, Scott W., 2012. "Money market pressure in emerging economies: International contagion versus domestic determinants," Economic Systems, Elsevier, vol. 36(4), pages 506-521.
    2. repec:eee:riibaf:v:46:y:2018:i:c:p:281-293 is not listed on IDEAS
    3. repec:mje:mjejnl:v:12:y:2016:i:3:p:19-37 is not listed on IDEAS
    4. Kutan, Ali M. & Muradoglu, Gulnur & Sudjana, Brasukra G., 2012. "IMF programs, financial and real sector performance, and the Asian crisis," Journal of Banking & Finance, Elsevier, vol. 36(1), pages 164-182.
    5. Nguyen, Vu Hong Thai & Boateng, Agyenim, 2015. "Bank excess reserves in emerging economies: A critical review and research agenda," International Review of Financial Analysis, Elsevier, vol. 39(C), pages 158-166.
    6. Fendel Ralf & Stremmel Hanno, 2016. "Characteristics of Banking Crises: A Comparative Study with Geographical Contagion," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 236(3), pages 349-388, May.

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