Currency crisis early warning systems: Why they should be dynamic

Bertrand Candelon, Elena Ivona Dumitrescu and Christophe Hurlin

International Journal of Forecasting, 2014, vol. 30, issue 4, 1016-1029

Abstract: Traditionally, financial crisis Early Warning Systems (EWSs) have relied on macroeconomic leading indicators when forecasting the occurrence of such events. This paper extends such discrete-choice EWSs by taking the persistence of the crisis phenomenon into account. The dynamic logit EWS is estimated using an exact maximum likelihood estimation method in both a country-by-country and a panel framework. The forecasting abilities of this model are then scrutinized using an evaluation methodology which was designed recently, specifically for EWSs. When used for predicting currency crises for 16 countries, this new EWS turns out to exhibit significantly better predictive abilities than the existing static one, both in- and out-of-sample, thus supporting the use of dynamic specifications for EWSs for financial crises.

Keywords: Dynamic models; Currency crisis; Early warning system (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (31)

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Related works:
Working Paper: Currency Crises Early Warning Systems: Why They Should Be Dynamic (2014)
Working Paper: Currency Crisis Early Warning Systems: Why They should be Dynamic (2014)
Working Paper: Currency Crises Early Warning Systems: why they should be Dynamic (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfor:v:30:y:2014:i:4:p:1016-1029

DOI: 10.1016/j.ijforecast.2014.03.015

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