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East Asian Financial Crisis of 1997 Revisited: Is it Possible to Devise an Early Warning System?

Author

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  • Feridun, Mete

    (Faculty of Economics and Administrative Sciences, Cyprus International University)

Abstract

This study examines the causes of the East Asian financial crisis and presents an early warning system based on data from Malaysia, Indonesia, Thailand, Singapore, and Philippines during 1982:1–1998:1 through a panel probit regression model using 20 monthly macroeconomic and financial sector variables. Results indicate that the significant variables are current account/GDP , domestic credit/GDP , terms of trade, lending and deposit rate spread, and foreign direct investment/GDP . Evidence further suggests that the probability of the crisis increases with an increase in domestic credit/GDP , M1, imports, and foreign direct investment/GDP . The probability of the crisis increases with a decrease in exports, stock prices, terms of trade, current account, and lending and deposit rate spread. The model correctly indicates 64% of the crises and 77% of the tranquil periods even with a cut-off probability of 10%,

Suggested Citation

  • Feridun, Mete, 2006. "East Asian Financial Crisis of 1997 Revisited: Is it Possible to Devise an Early Warning System?," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 59(2), pages 161-173.
    • Handle: RePEc:ris:ecoint:0083
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    More about this item

    Keywords

    Asian financial crisis; probit model; early warning systems;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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