IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/13629.html
   My bibliography  Save this paper

Assessing financial vulnerability, an early warning system for emerging markets: Introduction

Author

Listed:
  • Reinhart, Carmen
  • Goldstein, Morris
  • Kaminsky, Graciela

Abstract

This study analyzes and provides empirical tests of early warning indicators of banking and currency crises in emerging economies. The aim is to identify key empirical regularities in the run-up to banking and currency crises that would enable officials and private market participants to recognize vulnerability to financial crises at an earlier stage. This, in turn, should make it easier to motivate the corrective policy actions that would prevent such crises from actually taking place. Interest in identifying early warning indicators of financial crises has soared of late, stoked primarily by two factors. First, there is increasing recognition that banking and currency crises can be extremely costly to the countries in which they originate; in addition, these crises often spillover via a variety of international channels to increase the vulnerability of other countries to financial crisis. The second reason for the increased interest in early warning indicators of financial crises is that there is accumulating evidence that two of the most closely watched “market indicators” of default and currency risks--namely, interest rate spreads and changes in credit ratings--frequently do not provide much advance warning of currency and banking crises.

Suggested Citation

  • Reinhart, Carmen & Goldstein, Morris & Kaminsky, Graciela, 2000. "Assessing financial vulnerability, an early warning system for emerging markets: Introduction," MPRA Paper 13629, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:13629
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/13629/1/MPRA_paper_13629.pdf
    File Function: original version
    Download Restriction: no

    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.
    2. Graciela L. Kaminsky, 1998. "Currency and banking crises: the early warnings of distress," International Finance Discussion Papers 629, Board of Governors of the Federal Reserve System (U.S.).
    3. Michael Gavin & Ricardo Hausmann, 1996. "The Roots of Banking Crises: The Macroeconomic Context," Research Department Publications 4026, Inter-American Development Bank, Research Department.
    4. repec:idb:wpaper:318 is not listed on IDEAS
    5. Andrew Berg & Catherine Pattillo, 1999. "Are Currency Crises Predictable? A Test," IMF Staff Papers, Palgrave Macmillan, vol. 46(2), pages 1-1.
    6. Gerard Caprio & Patrick Honohan, 2008. "Banking Crises," Center for Development Economics 2008-09, Department of Economics, Williams College.
    7. Richard Cantor & Frank Packer, 1996. "Sovereign risk assessment and agency credit ratings," European Financial Management, European Financial Management Association, vol. 2(2), pages 247-256.
    8. Kaminsky, Graciela L & Reinhart, Carmen M, 1998. "Financial Crises in Asia and Latin America: Then and Now," American Economic Review, American Economic Association, vol. 88(2), pages 444-448, May.
    9. 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.
    10. Calvo, Guillermo A. & Mendoza, Enrique G., 1996. "Mexico's balance-of-payments crisis: a chronicle of a death foretold," Journal of International Economics, Elsevier, vol. 41(3-4), pages 235-264, November.
    11. 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.
    12. Fischer, Stanley, 1993. "The role of macroeconomic factors in growth," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 485-512, December.
    13. Diebold, Francis X & Rudebusch, Glenn D, 1989. "Scoring the Leading Indicators," The Journal of Business, University of Chicago Press, vol. 62(3), pages 369-391, July.
    14. Corsetti, Giancarlo & Pesenti, Paolo & Roubini, Nouriel, 1999. "What caused the Asian currency and financial crisis?," Japan and the World Economy, Elsevier, vol. 11(3), pages 305-373, October.
    15. Doukas, John, 1989. "Contagion effect on sovereign interest rate spreads," Economics Letters, Elsevier, vol. 29(3), pages 237-241.
    16. Barry Eichengreen & Andrew K. Rose, 1998. "Staying Afloat When the Wind Shifts: External Factors and Emerging-Market Banking Crises," NBER Working Papers 6370, National Bureau of Economic Research, Inc.
    17. Edward, Sebastian, 1986. "Are Devaluations Contractionary?," The Review of Economics and Statistics, MIT Press, vol. 68(3), pages 501-508, August.
    18. Morley, Samuel A, 1992. "On the Effect of Devaluation during Stabilization Programs in LDCs," The Review of Economics and Statistics, MIT Press, vol. 74(1), pages 21-27, February.
    19. Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February.
    20. Guillermo Larraín & Helmut Reisen & Julia von Maltzan, 1997. "Emerging Market Risk and Sovereign Credit Ratings," OECD Development Centre Working Papers 124, OECD Publishing.
    21. Carmen M. Reinhart & Sara Calvo, 1996. "Capital Flows to Latin America: Is There Evidence of Contagion Effects?," Peterson Institute Press: Chapters,in: Guillermo A. Calvo & Morris Goldstein & Eduard Hochreiter (ed.), Private Capital Flows to Emerging Markets After the Mexican Crisis, pages 151-171 Peterson Institute for International Economics.
    22. J. Saul Lizondo & Peter J. Montiel, 1989. "Contractionary Devaluation in Developing Countries: An Analytical Overview," IMF Staff Papers, Palgrave Macmillan, vol. 36(1), pages 182-227, March.
    23. Pierre-Richard Agénor & Jagdeep S. Bhandari & Robert P. Flood, 1992. "Speculative Attacks and Models of Balance of Payments Crises," IMF Staff Papers, Palgrave Macmillan, vol. 39(2), pages 357-394, June.
    24. Blanco, Herminio & Garber, Peter M, 1986. "Recurrent Devaluation and Speculative Attacks on the Mexican Peso," Journal of Political Economy, University of Chicago Press, vol. 94(1), pages 148-166, February.
    25. Michael Gavin & Ricardo Hausmann, 1996. "The Roots of Banking Crises: The Macroeconomic Context," IDB Publications (Working Papers) 6067, Inter-American Development Bank.
    26. Lee, Suk Hun, 1993. "Are the credit ratings assigned by bankers based on the willingness of LDC borrowers to repay?," Journal of Development Economics, Elsevier, vol. 40(2), pages 349-359, April.
    27. Michael Gavin & Ricardo Hausmann, 1996. "The Roots of Banking Crises: The Macroeconomic Context," Research Department Publications 4026, Inter-American Development Bank, Research Department.
    28. Maurice Obstfeld & Kenneth Rogoff, 1995. "The Mirage of Fixed Exchange Rates," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 73-96, Fall.
    29. P. Honohan, 2000. "Banking System Failures in Developing and Transition Countries: Diagnosis and Prediction," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 29(1), pages 83-109, February.
    30. Goldfajn, Ilan & Valdes, Rodrigo O., 1998. "Are currency crises predictable?," European Economic Review, Elsevier, vol. 42(3-5), pages 873-885, May.
    31. Kamin, Steve B. & Rogers, John H., 2000. "Output and the real exchange rate in developing countries: an application to Mexico," Journal of Development Economics, Elsevier, vol. 61(1), pages 85-109, February.
    32. Jason Furman & Joseph E. Stiglitz, 1998. "Economic Crises: Evidence and Insights from East Asia," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 1-136.
    33. Richard Cantor & Frank Packer, 1996. "Determinants and impact of sovereign credit ratings," Economic Policy Review, Federal Reserve Bank of New York, issue Oct, pages 37-53.
    34. Caprio, Gerard Jr. & Klingebiel, Daniela, 1996. "Bank insolvencies : cross-country experience," Policy Research Working Paper Series 1620, The World Bank.
    35. Vicente Galbis, 1993. "High Real Interest Rates Under Financial Liberalization; Is there a Problem?," IMF Working Papers 93/7, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    financial crises bank runs currency crashes early warning indicators;

    JEL classification:

    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F3 - International Economics - - International Finance
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:13629. 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: (Joachim Winter). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.