IDEAS home Printed from
MyIDEAS: Login to save this article or follow this journal

A Predictive Model for Financial Crises: An Exploratory Public Policy Tool

  • Yap Kok Wei


    (Faculty of Economics and Administration, University of Malaya)

  • Yap Su Fei


    (Faculty of Economics and Administration, University of Malaya)

Registered author(s):

    This paper aims to establish an early warning system for Malaysia to project future financial crises. We investigate the macroeconomic and financial factors in predicting financial crises using the logit econometric model and monthly data with the sample period from January 1980 to December 2003. Four indicators namely regional crisis dummy, current account balance, M2 growth and real exchange rate show significance and therefore, are incorporated in crisis prediction. The early warning system’s predictive power is then examined against various crises periods including the 1997 Asian financial crisis. The empirical results show that the early warning system exhibits forecasting ability. Both in-sample and out-ofsample performance evaluations affirm the system’s ability to predict the 1997 Asian financial crisis with at least one early warning signal issued within the 12-month period prior to the actual crisis. The early warning system should be treated as a supplement to policymakers existing forecasting tools in estimating the probability of crisis and assessing a country’s vulnerability rather than as an exclusive tool for crisis prediction.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    Download Restriction: no

    Article provided by Faculty of Economics and Administration, University of Malaya in its journal International Journal of Institutions and Economies.

    Volume (Year): 2 (2010)
    Issue (Month): 1 (April)
    Pages: 89-100

    in new window

    Handle: RePEc:umk:journl:v:2:y:2010:i:1:p:89-100
    Contact details of provider: Postal: Lembah Pantai, 50603 Kuala Lumpur
    Phone: 603-7967-3600
    Fax: 603-7956-7252
    Web page:

    More information through EDIRC

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:umk:journl:v:2:y:2010:i:1:p:89-100. 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: (Professor Dr. Rajah Rasiah)

    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 references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link 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 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.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.