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Early warning of Chinese financial risks: an empirical study based on an MSVAR model

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  • Zhou Hui
  • Liu Canhui
  • Long Liang

Abstract

This paper consolidates all the existing indexes in the published literature into three categories: currency crisis index, bank crisis index, and asset bubble crisis index, in order to reflect the crisis in the field of currency, banking, and asset. Taking these indexes for variables with the three assumptions of low risk, middle risk, and high risk, an MS (3)-VAR (1) model is used to test all the data from January 1998 to June 2011. It shows that the MS (3)-VAR (1) model may accurately and effectively provide early warnings for each crisis during the period. The implication of our findings is clear: policy-makers can be warned in advance about the risk of an economic crisis.

Suggested Citation

  • Zhou Hui & Liu Canhui & Long Liang, 2015. "Early warning of Chinese financial risks: an empirical study based on an MSVAR model," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 13(4), pages 353-367, November.
    • Handle: RePEc:taf:jocebs:v:13:y:2015:i:4:p:353-367
    DOI: 10.1080/14765284.2015.1097055
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    3. Frankel, Jeffrey A & Rose, Andrew K, 1996. "Currency Crashes in Emerging Markets: Empirical Indicators," CEPR Discussion Papers 1349, C.E.P.R. Discussion Papers.
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    5. Frankel, Jeffrey A. & Rose, Andrew K., 1996. "Currency crashes in emerging markets: An empirical treatment," Journal of International Economics, Elsevier, vol. 41(3-4), pages 351-366, November.
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