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.
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number
13629.
Find related papers by 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
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.:
Diebold, Francis X & Rudebusch, Glenn D, 1989.
"Scoring the Leading Indicators,"
Journal of Business,
University of Chicago Press, vol. 62(3), pages 369-91, July.
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