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Central bank´s value at risk and financial crises: An application to the 2001 Argentine crisis

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Abstract

Blejer and Schumacher (1999) were the first to suggest that Central Bank's Value at Risk (VaR), a widely used composite measure of potential portfolio losses in the corporate sector, could be used as an early warning indicator of financial crises. We extend their research in two aspects. First, we develop an operational model to calculate Central Bank's VaR and illustrate the methodology using data from the recent financial crisis in Argentina. Second, we compare the predictive performance of diverse measures based on the VaR approach to that of another well known early warning system, the signals approach, and several univariate leading indicators. The results reveal a strong relationship between the measures proposed and the crisis. Furthermore, one of the measures provides higher accuracy and announces the probability of a crisis sooner than the competing indicators.

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  • Diego Nocetti, 2006. "Central bank´s value at risk and financial crises: An application to the 2001 Argentine crisis," Journal of Applied Economics, Universidad del CEMA, vol. 9, pages 381-402, November.
    • Handle: RePEc:cem:jaecon:v:9:y:2006:n:2:p:381-402
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    Cited by:

    1. Farhan Akbar & Thierry Chauveau, 2009. "An Analysis of Exchange Rate Risk Exposure Related to Public Debt Portfolio of Pakistan: Beyond Delta-Normal VAR Approach," SBP Working Paper Series 30, State Bank of Pakistan, Research Department.
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    3. Shah Hussain, 2009. "Misalignment of Real Exchange Rate with its Equilibrium Path: Case of Pakistan," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 5, pages 1-14.
    4. Guillermo Peña, 2017. "Money, Lending and Banking Crises," Economic Papers, The Economic Society of Australia, vol. 36(4), pages 444-458, December.
    5. Yucel, Eray, 2011. "A Review and Bibliography of Early Warning Models," MPRA Paper 32893, University Library of Munich, Germany.

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    More about this item

    Keywords

    currency crises; Argentina; value at risk;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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