Currency Crises in Emerging Markets: An Application of Signals Approach to Turkey

Mete Feridun

Discussion Paper Series from Department of Economics, Loughborough University

Abstract: This article aims at identifying the leading indicators of currency crises in Turkey in its post-liberalization history through the signals approach introduced by Kaminsky et al (1998). Based on a broad set of potential indicators, a number of variables are found to be persistently signaling the currency crises during the period 1980:01-2006:06. Particularly, variables such as short-term debt/international reserves, imports, exports, M2/international reserves, and current account balance/GDP are consistent with the results of previous work in the literature. Analysis of the average lead time of the indicators reveals that the first signal is issued 4.4 months before a crisis erupts with public debt/GDP offering the longest lead time with 10.2 months, and government consumption/GDP offering the shortest with 2.2 months. Analysis of the persistence of the indicators reveals that the indicator issuing the most persistent signals is the government consumption/GDP and the one issuing the least persistent signals is FDI/GDP. Results are encouraging from the vantage point of an early warning system since signaling, on average, occurs sufficiently early to allow preemptive policy actions.

Keywords: Speculative attacks; currency crises; signals approach, Turkey. (search for similar items in EconPapers)
JEL-codes: E44 F30 (search for similar items in EconPapers)
Date: 2006-12, Revised 2006-12
New Economics Papers: this item is included in nep-cwa, nep-ifn and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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