Leading indicators of sovereign debt and currency crises: Comparative analysis of 2001 and 2018 shocks in Argentina

Gruszczyński Marcin () and Majczak Paweł ()
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Gruszczyński Marcin: Faculty of Economic Sciences, University of Warsaw, Poland
Majczak Paweł: Faculty of Economic Sciences, University of Warsaw, Poland

Journal of Economics and Management, 2020, vol. 42, issue 4, 20-47

Abstract: Aim/purpose – This paper investigates the accuracy of leading indicators in the case of the 2001 sovereign default crisis and the 2018 currency turmoil in Argentina. Design/methodology/approach – In this paper, we conducted early warning signals analysis based on a-priori selected variables. For each of the macroeconomic variables, we computed yearly changes and selected the threshold to minimise the noise-to-signal ratio, i.e. the ratio of percentage of false signals in ‘normal’ times to percentage of good signals in a two-year period preceding each of the crises. Findings – The predictive power of indicators differs significantly in various crisis episodes. For the 2001 crisis, the decline in value of bank deposits was the best leading indicator based on the noise-to-signal ratio. For the 2018 currency crisis, the lowest noise-to-signal ratio was observed for the lending-deposit rate ratio. Research implications/limitations – The survey is limited mostly by the data availability and their quality. Originality/value/contribution – This paper gives a complex review of the major early warning indicators in the context of the most recent history of Argentina’s economy. It applies a set of classical leading indicators to two modern cases of financial crises. The paper proposes an original ‘knocking the window’ approach to the presentation of traditional warning concepts in the context of current economic events.

Keywords: Argentina; currency crisis; early warning signals; sovereign debt crisis (search for similar items in EconPapers)
JEL-codes: E44 F37 H12 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:jecman:v:42:y:2020:i:4:p:20-47:n:1

DOI: 10.22367/jem.2020.42.02

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