Are global shocks leading indicators of currency crisis in Viet Nam?

Thi Hoang Anh Pham

Research in International Business and Finance, 2017, vol. 42, issue C, 605-615

Abstract: This paper aims to identify leading indicators of a currency crisis in Viet Nam based on an early warning system for the period 1996–February 2016. This paper found that global financial shocks (e.g., regional and global financial crisis, unexpected changes in monetary policy of largest economies such as the United States and the People’s Republic of China), and domestic credit growth rate are leading indicators of a currency crisis in Viet Nam in all three models. Deficits in trade balance, international reserves, and overvaluation of the dong are also good indicators. In addition, a model in which a currency crisis or turbulence in the foreign exchange market is defined based on the exchange market pressure and parallel market premium, with window length of 2 months, outperformed for predicting a currency crisis in Viet Nam. Empirical results suggested that probability of predicting a true currency crisis was 77.5%.

Keywords: Early warning system (EWS); Currency crisis; Global shock; Exchange market pressure (EMP); Viet Nam (search for similar items in EconPapers)
JEL-codes: C32 E52 F31 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:42:y:2017:i:c:p:605-615

DOI: 10.1016/j.ribaf.2017.07.005

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