IDEAS home Printed from https://ideas.repec.org/a/onb/oenbfi/y2007i1b5.html
   My bibliography  Save this article

Predicting Currency Crises Using the Term Structure of Relative Interest Rates: Case Studies of the Czech Republic and Russia

Author

Listed:
  • Jesús Crespo Cuaresma

    () (Vienna University of Economics and Business, Institute for Fiscal and Monetary Policy)

  • Tomáš Slacík

    () (Oesterreichische Nationalbank, Foreign Research Division)

Abstract

Among the plethora of early warning mechanisms for currency crises proposed in the literature, there is an approach which has received little attention so far. This rather simple early warning indicator relies on the term structure of relative interest rates, unlike the vast majority of such systems that are based on macroeconomic fundamentals to predict a crisis in a long- or medium-term horizon. It measures changes in market sentiment regarding the relative probability of a currency crisis to estimate the timing of a crisis within a very short time window. This indicator thus complements long-horizon models that have been widely used so far. We apply this method to currency crises in the Czech Republic in 1997 and in Russia in 1998 and fi nd evidence that the indicator would have performed well as a real-time predictor in both episodes of currency distress.

Suggested Citation

  • Jesús Crespo Cuaresma & Tomáš Slacík, 2007. "Predicting Currency Crises Using the Term Structure of Relative Interest Rates: Case Studies of the Czech Republic and Russia," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 135-149.
  • Handle: RePEc:onb:oenbfi:y:2007:i:1:b:5
    as

    Download full text from publisher

    File URL: https://www.oenb.at/dam/jcr:debdc755-4e03-45dc-95f1-8034224ea6ba/feei_2007_1_cuaresma_slacik_tcm16-58442.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Graciela Kaminsky & Saul Lizondo & Carmen M. Reinhart, 1998. "Leading Indicators of Currency Crises," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 1-48, March.
    2. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear of Floating," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 379-408.
    3. Rudi Dornbusch, 2002. "A Primer on Emerging-Market Crises," NBER Chapters,in: Preventing Currency Crises in Emerging Markets, pages 743-754 National Bureau of Economic Research, Inc.
    4. Jesus Crespo Cuaresma & Tomas Slacik, 2010. "An almost-too-late warning mechanism for currency crises," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 18(1), pages 123-141, January.
    5. Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 134-144, January.
    6. Cerra, Valerie & Saxena, Sweta Chaman, 2002. "Contagion, Monsoons, and Domestic Turmoil in Indonesia's Currency Crisis," Review of International Economics, Wiley Blackwell, vol. 10(1), pages 36-44, February.
    7. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2004. "The Revived Bretton Woods System: The Effects of Periphery Intervention and Reserve Management on Interest Rates & Exchange Rates in Center Countries," NBER Working Papers 10332, National Bureau of Economic Research, Inc.
    8. Stanley Fischer, 2001. "Exchange Rate Regimes: Is the Bipolar View Correct?," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 3-24, Spring.
    9. Martin Feldstein, 2002. "Economic and Financial Crises in Emerging Market Economies: Overview of Prevention and Management," NBER Working Papers 8837, National Bureau of Economic Research, Inc.
    10. Abbigail J. Chiodo & Michael T. Owyang, 2002. "A case study of a currency crisis: the Russian default of 1998," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 7-18.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Alexis Cruz-Rodríguez, 2014. "Is there a relationship between fiscal sustainability and currency crises? International evidence based on causality tests," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Eastern Macedonia and Thrace Institute of Technology (EMATTECH), Kavala, Greece, vol. 7(1), pages 69-87, April.
    2. Crespo Cuaresma, Jesús & Slacik, Tomas, 2009. "On the determinants of currency crises: The role of model uncertainty," Journal of Macroeconomics, Elsevier, vol. 31(4), pages 621-632, December.
    3. Cruz-Rodríguez Alexis, 2013. "The Relationship between Fiscal Sustainability and Currency Crises in Some Selected Countries," Review of Economic Perspectives, De Gruyter Open, vol. 13(4), pages 176-194, December.
    4. Cruz-Rodríguez, Alexis, 2015. "Sostenibilidad fiscal y crisis cambiarias: Un análisis empírico
      [Fiscal sustainability and currency crises: An empirical analysis]
      ," MPRA Paper 67741, University Library of Munich, Germany.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:onb:oenbfi:y:2007:i:1:b:5. 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: (Markus Eller). General contact details of provider: http://edirc.repec.org/data/oenbbat.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.