A Forewarning Indicator System for Financial Crises: the Case of Six Central and Eastern European Countries

Irène Andreou () and Gilles Dufrénot ()
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Irène Andreou: GATE(CNRS, Université Lyon 2), Postal: University of Lyon, Lyon, F-69003, France; CNRS, UMR 5824,, GATE, Ecully, F-69130, France

Journal of Economic Integration, 2009, vol. 24, 87-115

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. These indicators could help to achieve a guideline, strengthening the domestic capacities to face economic integration and financial stresses.

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