Safety from Currency Crashes
As part of a proposed two-stage early warning system, we estimate "safety zones" for fundamentals under which currency crashes are unlikely to occur. We depart from traditional regression-based early warning systems and instead estimate the set of fundamentals for which currency crises never occurred and label this environment "safe or near-safe." For a sample of emerging markets from 1985 through 1998, we are able to classify 47 percent of the observed tranquil environments as safe or near-safe on a 12-month horizon, based on criteria in which external debt and reserves feature heavily. Nonparametric tests indicate that environments we identified as safe or near-safe bear less than a 1 percent risk of a currency crash. The results also pass a number of out-of-sample tests. Copyright 2000, International Monetary Fund
Volume (Year): 47 (2000)
Issue (Month): 2 ()
|Contact details of provider:|| Web page: http://www.palgrave-journals.com/|
|Order Information:|| Postal: Palgrave Macmillan Journals, Subscription Department, Houndmills, Basingstoke, Hampshire RG21 6XS, UK|
Web: http://www.palgrave-journals.com/pal/subscribe/index.html Email:
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.:
- Christian B. Mulder & Matthieu BussiÃ¨re, 1999. "External Vulnerability in Emerging Market Economies; How High Liquidity Can Offset Weak Fundamentals and the Effects of Contagion," IMF Working Papers 99/88, International Monetary Fund.
- Robert Flood & Nancy Marion, 1998.
"Perspectives on the Recent Currency Crisis Literature,"
NBER Working Papers
6380, National Bureau of Economic Research, Inc.
- Flood, Robert & Marion, Nancy, 1999. "Perspectives on the Recent Currency Crisis Literature," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 4(1), pages 1-26, January.
- Nancy P. Marion & Robert P. Flood, 1998. "Perspectiveson the Recent Currency Crisis Literature," IMF Working Papers 98/130, International Monetary Fund.
- 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.
- Kaminsky, Graciela & Lizondo, Saul & Reinhart, Carmen M., 1997. "Leading indicators of currency crises," Policy Research Working Paper Series 1852, The World Bank.
- 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.
- Abhijit V. Banerjee, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 797-817.
- Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992.
"A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades,"
Journal of Political Economy,
University of Chicago Press, vol. 100(5), pages 992-1026, October.
- Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 2010. "A theory of Fads, Fashion, Custom and cultural change as informational Cascades," Levine's Working Paper Archive 1193, David K. Levine.
- Calvo, Guillermo A. & Mendoza, Enrique G., 1996.
"Mexico's balance-of-payments crisis: a chronicle of a death foretold,"
Journal of International Economics,
Elsevier, vol. 41(3-4), pages 235-264, November.
- Guillermo A. Calvo & Enrique G. Mendoza, 1996. "Mexico's balance-of-payments crisis: a chronicle of death foretold," International Finance Discussion Papers 545, Board of Governors of the Federal Reserve System (U.S.).
- 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.
- Cole, Harold L. & Kehoe, Timothy J., 1996. "A self-fulfilling model of Mexico's 1994-1995 debt crisis," Journal of International Economics, Elsevier, vol. 41(3-4), pages 309-330, November.
When requesting a correction, please mention this item's handle: RePEc:pal:imfstp:v:47:y:2000:i:2:p:4. 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: (Iulia Badea)
If references are entirely missing, you can add them using this form.