AN EARLY WARNING OF AN IMPENDING CURRENCY CRISIS IN CHINA

Ruoxi Zhang, Xue Li () and Satish Chand ()
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Ruoxi Zhang: School of Finance, Academic of Financial Risk Research, Capital University of Economics and Business, 121 Zhangjialukou, Beijing 100070, P. R. China
Xue Li: School of Finance, Academic of Financial Risk Research, Capital University of Economics and Business, 121 Zhangjialukou, Beijing 100070, P. R. China
Satish Chand: #x2020;School of Business, University of New South Wales, Canberra, ACT, Australia

The Singapore Economic Review (SER), 2019, vol. 64, issue 05, 1101-1125

Abstract: Are there early warnings of an impending financial crisis in China? Our analysis using the Kaminsky–Lizondo–Reinhart (KLR) signal approach reveals that the probability of China having a currency crisis in the 24 months to October 2017 could be increased assuming no remedial action by the authorities to avert an impending crisis. Notwithstanding the above, our analysis shows that nine out of 15 economic indicators are effective in predicting a currency crisis. Loss function of policymakers and evaluation of usefulness are then employed to verify their validity. The results show that bank deposits and M2/international reserves are the most powerful indicators.

Keywords: KLR approach; currency crisis; loss function; usefulness evaluation; China (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1142/S021759081850025X

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