What is the most prominent reserve indicator that forewarns currency crises?

Suat Aydin and Cengiz Tunç

Economics Letters, 2023, vol. 231, issue C

Abstract: In this study, the predictive powers of three indicators of international reserve adequacy, namely short-term debt-to-total reserves ratio, broad money-to-total reserves ratio, and reserves in months of imports on currency crisis are analysed. We show that while each indicator has the potential in predicting the probability of a crisis, the ratio of broad money-to-total reserves is a better and more robust indicator. While it is not possible to regulate the other two indicators, central banks have significant power in determining the ratio of broad money-to-total reserves and hence do have the capability of monitoring and possibly preventing or taming currency crises using this power.

Keywords: Adequate level of reserves; Currency crisis; Financial crisis (search for similar items in EconPapers)
JEL-codes: E32 F31 F41 G01 H12 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:231:y:2023:i:c:s0165176523003075

DOI: 10.1016/j.econlet.2023.111282

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