Are the Central and Eastern European Transition Countries still vulnerable to a Financial Crisis? Results from a Multivariate Logit Analysis

Thomas Linne and Axel Bruggermann
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Thomas Linne: Institute for Economic Research Halle

No 141, Royal Economic Society Annual Conference 2003 from Royal Economic Society

Abstract: The aim of the paper is to analyse the determinants of financial crises in a sample of nine transition countries in Central and Eastern Europe with a modified logit model. The modification takes explicitly into account the rare event characteristic of a currency crisis. Our results suggest that it is possible to explain the occurrence of crises with only a small number of macroeconomic variables. The variables which contribute positively to the probability of a crisis are: i) the ratio of the current account deficit to GDP; ii) the ratio of the budget deficit to GDP; iii) the change in currency reserves; iv) the amount of real appreciation of the currency relative to a trend, and v) the change in exports. Short-term debt by banks, which played a key role in the history of the Asian crises, was not an important factor in the build up of the crisis potential in Central and Eastern Europe.

Keywords: currency crisis; logit-analysis; Central and Eastern Europe (search for similar items in EconPapers)
JEL-codes: F31 F47 (search for similar items in EconPapers)
Date: 2003-06-04
New Economics Papers: this item is included in nep-eec, nep-ifn and nep-tra
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