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An optimal early warning system for currency crises under model uncertainty

Mamdouh Abdelsalam () and Hany Abdel-Latif ()

Central Bank Review, 2020, vol. 20, issue 3, 99-107

Abstract: This paper assesses several early warning (EWS) models of financial crises to propose a model that can predict the incidence of a currency crisis in developing countries. For this purpose, we employ the equal weighting (EW) and dynamic model averaging (DMA) approaches to combine forecast from individual models allowing for time-varying weights. Taking Egypt as a case study and focusing only on currency crises, our findings show that combined forecast (EW- and DMA-based EWS), to account for uncertainty, perform better than other competing models in both in-sample and out-of-sample forecasts.

Keywords: Financial crises; Currency crises; Early warning; Uncertainty; Egypt (search for similar items in EconPapers)
Date: 2020
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Handle: RePEc:tcb:cebare:v:20:y:2020:i:3:p:99-107