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Leading indicators of balance-of-payments crises: a partial review

  • Michael Chui
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    This paper reviews the theory of balance-of-payments crises, and its implications for identifying potential leading indicators of crises. It discusses and evaluates three different empirical approaches to balance-of-payments crises: the signalling, discrete-choice, and structural approaches. Despite claims of success in predicting currency crises, we note some serious theoretical and empirical qualifications which throw these claims into question. Nevertheless, we conclude that a range of indicators supported by theory may still be useful for policy-makers interested in preventing financial instability.

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    File URL: http://www.bankofengland.co.uk/archive/Documents/historicpubs/workingpapers/2002/wp171.pdf
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    Paper provided by Bank of England in its series Bank of England working papers with number 171.

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    Date of creation: Dec 2002
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    Handle: RePEc:boe:boeewp:171
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    1. Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany.
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    18. Sebastian Edwards, 1998. "Interest Rate Volatility, Capital Controls, and Contagion," NBER Working Papers 6756, National Bureau of Economic Research, Inc.
    19. Christian B. Mulder & Matthieu Bussière, 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.
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