A Perspectiveon Predicting Currency Crises

Robert Flood, Juan Yepez and Nancy Marion

No 2010/227, IMF Working Papers from International Monetary Fund

Abstract: Currency crises are difficult to predict. It could be that we are choosing the wrong variables or using the wrong models or adopting measurement techniques not up to the task. We set up a Monte Carlo experiment designed to evaluate the measurement techniques. In our study, the methods are given the right fundamentals and the right models and are evaluated on how closely the estimated predictions match the objectively correct predictions. We find that all methods do reasonably well when fundamentals are explosive and all do badly when fundamentals are merely highly volatile.

Keywords: WP; exchange rate; dependent variable; absolute error; Speculative attacks; currency crises; fixed exchange rate; devaluation; Monte Carlo; crisis probability; crisis model; OLS regression; OLS estimator; OLS coefficient; OLS estimate; currency-crisis episode; Exchange rates; Conventional peg; Exchange rate adjustments; International reserves; Europe; Asia and Pacific (search for similar items in EconPapers)
Pages: 28
Date: 2010-10-01
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Citations: View citations in EconPapers (1)

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