The early warnings of balance-of-payments problems: Kaminsky and Reinhart revisited
This paper builds upon the model of Kaminsky and Reinhart (1999) and extends it to triplecrises. It applies a new visualisation approach combining elements of an event study analysis and a fan chart technique. This approach illustrates the deviation of fundamentals in the runup to balance-of-payments problems. The results suggest that both systemic banking crises and deteriorating government finances are highly significant leading indicators. Taking these indicators into account helps build a new early warning system for currency crises. The results are highly significant and robust. The out-of-sample forecasts demonstrate the strong predictive power of the model.
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- Sarlin, Peter & Peltonen, Tuomas A., 2013. "Mapping the state of financial stability," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 26(C), pages 46-76.
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