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The early warnings of balance-of-payments problems: Kaminsky and Reinhart revisited

  • Lang, Michael
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    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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    File URL: https://www.econstor.eu/bitstream/10419/85379/1/770814670.pdf
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    Paper provided by Frankfurt School of Finance and Management in its series Frankfurt School - Working Paper Series with number 205.

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    Date of creation: 2013
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    Handle: RePEc:zbw:fsfmwp:205
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    1. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises; A New Database," IMF Working Papers 08/224, International Monetary Fund.
    2. Reinhart, Karmen & Rogoff, Kenneth, 2009. ""This time is different": panorama of eight centuries of financial crises," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 77-114, March.
    3. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters, in: This Time Is Different: Eight Centuries of Financial Folly Princeton University Press.
    4. 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.
    5. Graciela Laura Kaminsky, 1997. "Leading Indicators of Currency Crises," IMF Working Papers 97/79, International Monetary Fund.
    6. Bussiere, Matthieu & Fratzscher, Marcel, 2006. "Towards a new early warning system of financial crises," Journal of International Money and Finance, Elsevier, vol. 25(6), pages 953-973, October.
    7. Weymark, Diana N., 1995. "Estimating exchange market pressure and the degree of exchange market intervention for Canada," Journal of International Economics, Elsevier, vol. 39(3-4), pages 273-295, November.
    8. Sarlin, Peter & Peltonen, Tuomas A., 2011. "Mapping the state of financial stability," Working Paper Series 1382, European Central Bank.
    9. Sarlin, Peter & Peltonen, Tuomas A., 2011. "Mapping the state of financial stability," BOFIT Discussion Papers 18/2011, Bank of Finland, Institute for Economies in Transition.
    10. Bussière, Matthieu & Saxena, Sweta C. & Tovar, Camilo E., 2010. "Chronicle of currency collapses: re-examining the effects on output," Working Paper Series 1226, European Central Bank.
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