A FOREWARNING INDICATOR SYSTEM FOR FINANCIAL CRISES: THE CASE OF SIX CENTRAL AND EASTERN EUROPEAN COUNTRIES

Irene Andreou (), Gilles Dufrénot (), Alain Sand-Zantman () and Aleksandra Zdzienicka-Durand ()

No wp901, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan Stephen M. Ross Business School

Abstract: We propose a measure of the probability of crises associated with an aggregate indicator, where the percentage of false alarms and the proportion of missed signals can be combined to give an appreciation of the vulnerability of an economy. In this perspective, the important issue is not only to determine whether a system produces true predictions of a crisis, but also whether there are forewarning signs of a forthcoming crisis prior to its actual occurrence. To this end, we adopt the approach initiated by Kaminsky, Lizondo and Reinhart (1998), analyzing each indicator and calculating each threshold separately. We depart from this approach in that each country is also analyzed separately, permitting the creation of a more “custom-made” early warning system for each one.

Keywords: Currency Crisis; Early Warning System; Composite Indicator; Eastern Europe. (search for similar items in EconPapers)
JEL-codes: F31 F47 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec, nep-ifn, nep-mon, nep-opm and nep-tra
Date: 2007-05-01
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http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp901.pdf

Related works:
Working Paper: A forewarning indicator system for financial crises: the case of six central and eastern european countries (2007)
Working Paper: A forewarning indicator system for financial crises: the case of six Central and Eastern European countries (2009)
Working Paper: A forewarning indicator system for financial crises: the case of six Central and Eastern European countries (2007)
Working Paper: A forewarning indicator system for financial crises: the case of six Central and Eastern European countries (2007)
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