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Determinants of Currency Crises in Emerging Markets: An Empirical Investigation on Turkey

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  • Mete Feridun

    ()

    (Department of Economics, Loughborough University)

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    Abstract

    This article aims at identifying the determinants of currency crises in Turkey the period 1980:01-2006:06. Following a general-to-specific model selection methodology, a broad set of pre-selected variables were tested through bivariate logit regressions. Significant variables were then used in a multivariate logit model. Strong evidence emerged that current account balance/GDP, short-term debt/long-term debt, domestic credit/GDP, foreign liabilities/foreign assets of banks, and fiscal balance/GDP are significant with correct signs. The measures of goodness-of-fit and in-sample predictive power of the model turned out to be favorable. The resulting model correctly calls 87.18% and 73.08% of the months at 10% and 20% levels, respectively.

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    File URL: http://www.lboro.ac.uk/departments/ec/RePEc/lbo/lbowps/mferidun_wp5.pdf
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    Paper provided by Department of Economics, Loughborough University in its series Discussion Paper Series with number 2007_01.

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    Date of creation: Jan 2007
    Date of revision: Jan 2007
    Handle: RePEc:lbo:lbowps:2007_01
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    Loughborough, Leicestershire, LE11 3TU

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    Fax: +44 (0) 1509 223910
    Web page: http://www.lboro.ac.uk/departments/sbe/research/economics/index.html

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    Keywords: Speculative attacks; currency crises; logit model; Turkey.;

    Find related papers by JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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    1. Klein, Michael W. & Marion, Nancy P., 1997. "Explaining the duration of exchange-rate pegs," Journal of Development Economics, Elsevier, vol. 54(2), pages 387-404, December.
    2. Jan P.A.M. Jacobs & Gerard H. Kuper & Lestano, 2004. "Currency crises in Asia: A multivariate logit approach," International Finance 0409005, EconWPA.
    3. KOMULAINEN Tuomas LUKKARILA Johanna, . "What Drives Financial Crises in Emerging Markets?," EcoMod2003 330700082, EcoMod.
    4. Herrara, Santiago & Garcia, Conrado, 1999. "User's guide to an early warning system for macroeconomic vulnerability in Latin American countries," Policy Research Working Paper Series 2233, The World Bank.
    5. Komulainen, Tuomas & Lukkarila, Johanna, 2003. "What drives financial crises in emerging markets?," Emerging Markets Review, Elsevier, vol. 4(3), pages 248-272, September.
    6. Komulainen, Tuomas & Lukkarila, Johanna, 2003. "What drives financial crises in emerging markets?," BOFIT Discussion Papers 5/2003, Bank of Finland, Institute for Economies in Transition.
    7. Catherine A Pattillo & Andrew Berg & Gian M Milesi-Ferretti & Eduardo Borensztein, 2000. "Anticipating Balance of Payments Crises--The Role of Early Warning Systems; The Role of Early Warning Systems," IMF Occasional Papers 186, International Monetary Fund.
    8. Catherine A Pattillo & Andrew Berg, 1998. "Are Currency Crises Predictable? A Test," IMF Working Papers 98/154, International Monetary Fund.
    9. Tuomas Komulainen & ) & Johanna Lukkarila, 2003. "What drives financial crises in emerging markets?," Macroeconomics 0304010, EconWPA.
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