Assessing Indicators of Currency Crisis in Ethiopia : Signals Approach
Currency crises, generally defined as rapid depreciations of a local currency or loss of foreign exchange reserves, are common incidents in modern monetary systems. Due to their repeated occurrence and severity, they have earned wide coverage by both theoretical and empirical literature. However, unlike advanced and emerging economies, currency crises in low-income countries have not received due attention. This paper uses the signals approach developed by Kaminsky et al. (1998) and assesses currency crisis in Ethiopia over the time frame January 1970 to December 2008. Using the Exchange Market Pressure Index (EMPI), we identify three currency crisis episodes that coincide with the liberalisation following the fall of Ethiopian socialism, the Ethio-Eritrean border conflict, and the zenith of the global financial crisis. The timing shows the importance of both local and international dynamics. More macro-economic indicators picked up the first crisis in a 24 month signalling window, compared to the latter two. Three categories of indicators were used: current account, capital account and domestic financial sector. None of the capital account indicators were significant based on the noise-to-signal ratio rule. One possible explanation for this might be the weak integration of the Ethiopian economy with global capital markets.
|Date of creation:||Jul 2013|
|Contact details of provider:|| Postal: Prinsstraat 13, B-2000 Antwerp|
Phone: +32-(0)3-265 5770
Fax: +32-(0)3-265 5771
Web page: http://www.uantwerpen.be/iob
More information through EDIRC
References listed on IDEAS
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.:
- Barry Eichengreen & Andrew K. Rose & Charles Wyplosz, 1996.
"Contagious Currency Crises,"
NBER Working Papers
5681, National Bureau of Economic Research, Inc.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2014.
"This Time is Different: A Panoramic View of Eight Centuries of Financial Crises,"
Annals of Economics and Finance,
Society for AEF, vol. 15(2), pages 1065-1188, November.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2008. "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," CEMA Working Papers 595, China Economics and Management Academy, Central University of Finance and Economics.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2008. "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," NBER Working Papers 13882, National Bureau of Economic Research, Inc.
- Peng, Duan & Bajona, Claustre, 2008. "China's vulnerability to currency crisis: A KLR signals approach," China Economic Review, Elsevier, vol. 19(2), pages 138-151, June.
- Kaminsky, Graciela & Lizondo, Saul & Reinhart, Carmen M., 1997.
"Leading indicators of currency crises,"
Policy Research Working Paper Series
1852, The World Bank.
- Reinhart, Carmen M. & Rogoff, Kenneth S., 2009.
"The Aftermath of Financial Crises,"
11129155, Harvard University Department of Economics.
- Reinhart, Carmen M. & Rogoff, Kenneth, 2009. "The Aftermath of Financial Crises," CEPR Discussion Papers 7209, C.E.P.R. Discussion Papers.
- Reinhart, Carmen & Rogoff, Kenneth, 2008.
"Las secuelas de las crisis financieras
[The aftermath of financial crisis]," MPRA Paper 13695, University Library of Munich, Germany.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "The Aftermath of Financial Crises," NBER Working Papers 14656, National Bureau of Economic Research, Inc.
- Reinhart, Carmen & Kaminsky, Graciela, 2000.
"Las crisis gemelas: las causas de los problemas bancarios y de balanza de pagos
[The twin crises: Te causes of banking and balance of payments problems]," MPRA Paper 13842, University Library of Munich, Germany.
- Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
- 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.
- Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers 544, Board of Governors of the Federal Reserve System (U.S.).
- Jan Babecký & Tomáš Havránek & Jakub Mateju & Marek Rusnák & Katerina Šmídková & Borek Vašícek, 2012.
"Banking, Debt, and Currency Crises: Early Warning Indicators for Developed Countries,"
Working Papers IES
2012/20, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jul 2012.
- Babecký, Jan & Havránek, Tomáš & Matějů, Jakub & Rusnák, Marek & Šmídková, Kateřina & Vašíček, Bořek, 2014. "Banking, debt, and currency crises in developed countries: Stylized facts and early warning indicators," Journal of Financial Stability, Elsevier, vol. 15(C), pages 1-17.
- Babecký, Jan & Havránek, Tomáš & Matějů, Jakub & Rusnák, Marek & Šmídková, Kateřina & Vašíček, Bořek, 2012. "Banking, debt and currency crises: early warning indicators for developed countries," Working Paper Series 1485, European Central Bank.
- Brüggemann, Axel & Linne, Thomas, 2002. "Are the Central and Eastern European transition countries still vulnerable to a financial crisis? Results from the signals approach," BOFIT Discussion Papers 5/2002, Bank of Finland, Institute for Economies in Transition.
- Stavarek, Daniel, 2010. "Exchange Market Pressure and De Facto Exchange Rate Regime in the Euro-Candidates," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 119-139, July.
- Berg, Andrew & Pattillo, Catherine, 1999. "Predicting currency crises:: The indicators approach and an alternative," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 561-586, August.
- Brüggemann, Axel & Linne, Thomas, 2002. "Are the Central and Eastern European Transition Countries still vullnerable to an Financial Crisis? Results from the Signals Approach," IWH Discussion Papers 157, Halle Institute for Economic Research (IWH).
- Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-325, August.
- Gary Gorton, 1986.
"Banking panics and business cycles,"
86-9, Federal Reserve Bank of Philadelphia.
- André Van Poeck & Jacques Vanneste & Maret Veiner, 2007. "Exchange Rate Regimes and Exchange Market Pressure in the New EU Member States," Journal of Common Market Studies, Wiley Blackwell, vol. 45, pages 459-485, 06.
- Jan P. A. M. Lestano, 2007. "Dating currency crises with ad hoc and extreme value-based thresholds: East Asia 1970-2002 [Dating currency crises]," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 12(4), pages 371-388.
- Hali J. Edison, 2003.
"Do indicators of financial crises work? An evaluation of an early warning system,"
International Journal of Finance & Economics,
John Wiley & Sons, Ltd., vol. 8(1), pages 11-53.
- Hali J. Edison, 2000. "Do indicators of financial crises work? an evaluation of an early warning system," International Finance Discussion Papers 675, Board of Governors of the Federal Reserve System (U.S.).
- Taye, Haile Kebret, 1999. "The Impact of Devaluation on Macroeconomic Performance: The Case of Ethiopia," Journal of Policy Modeling, Elsevier, vol. 21(4), pages 481-496, July.
- Ghura, Dhaneshwar & Grennes, Thomas J., 1993. "The real exchange rate and macroeconomic performance in Sub-Saharan Africa," Journal of Development Economics, Elsevier, vol. 42(1), pages 155-174, October.
- Rudger Dornbusch & Ilan Goldfajn & Rodrigo O. Valdés, 1995. "Currency Crises and Collapses," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(2), pages 219-294.
When requesting a correction, please mention this item's handle: RePEc:iob:wpaper:2013007. 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: (Hans De Backer)
If references are entirely missing, you can add them using this form.