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A Forewarning Indicator System for Financial Crises: the Case of Six Central and Eastern European Countries

Author

Listed:
  • Andreou, Irène

    () (GATE(CNRS, Université Lyon 2))

  • Dufrénot, Gilles

    () (Université Paris 12)

Abstract

We propose a measure of the probability of crises associated with an aggregate indicator, where the percentage of false alarms and the proportion of missed signals can be combined to give an appreciation of the vulnerability of an economy. In this perspective, the important issue is not only to determine whether a system produces true predictions of a crisis, but also whether there are forewarning signs of a forthcoming crisis prior to its actual occurrence. To this end, we adopt the approach initiated by Kaminsky, Lizondo and Reinhart (1998), analyzing each indicator and calculating each threshold separately. We depart from this approach in that each country is also analyzed separately, permitting the creation of a more “custom-made” early warning system for each one. These indicators could help to achieve a guideline, strengthening the domestic capacities to face economic integration and financial stresses.

Suggested Citation

  • Andreou, Irène & Dufrénot, Gilles, 2009. "A Forewarning Indicator System for Financial Crises: the Case of Six Central and Eastern European Countries," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 24, pages 87-115.
  • Handle: RePEc:ris:integr:0466
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    References listed on IDEAS

    as
    1. Eichengreen, Barry & Rose, Andrew K & Wyplosz, Charles, 1996. "Contagious Currency Crises," CEPR Discussion Papers 1453, C.E.P.R. Discussion Papers.
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    Citations

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    Cited by:

    1. Hans-Eggert Reimers, 2012. "Early Warning Indicator Model of Financial Developments Using an Ordered Logit," Business and Economic Research, Macrothink Institute, vol. 2(2), pages 171-191, December.
    2. Ponomarenko, Alexey, 2013. "Early warning indicators of asset price boom/bust cycles in emerging markets," Emerging Markets Review, Elsevier, vol. 15(C), pages 92-106.
    3. Davide Furceri & Aleksandra Zdzienicka, 2011. "The real effect of financial crises in the European transition economies," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 19(1), pages 1-25, January.
    4. Casu, Barbara & Clare, Andrew & Saleh, Nashwa, 2011. "Towards a new model for early warning signals for systemic financial fragility and near crises: an application to OECD countries," MPRA Paper 37043, University Library of Munich, Germany.
    5. Irène Andreou & Aleksandra Zdzienicka, 2009. "Financial Vulnerability in the Central and Eastern European Countries," Working Papers 0907, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    6. Dieter Gerdesmeier & Hans-Eggert Reimers & Barbara Roffia, 2011. "Early Warning Indicators for Asset Price Booms," Review of Economics & Finance, Better Advances Press, Canada, vol. 1, pages 1-19, June.
    7. Oet, Mikhail V. & Gramlich, Dieter & Sarlin, Peter, 2016. "Evaluating measures of adverse financial conditions," Journal of Financial Stability, Elsevier, vol. 27(C), pages 234-249.

    More about this item

    Keywords

    currency crisis; early warning system; composite indicator; Eastern Europe;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

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