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An optimal early warning system for currency crises under model uncertainty

Mamdouh Abdelmoula M. Abdelsalama () and Hany Abdel-Latif ()
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Mamdouh Abdelmoula M. Abdelsalama: Minufia University, Egypt

Authors registered in the RePEc Author Service: Mamdouh Abdelmoula Mohamed Abdelsalam ()

No 1334, Working Papers from Economic Research Forum

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

Pages: 28 pages
Date: 2019-08-21, Revised 2019-08-21
New Economics Papers: this item is included in nep-ara and nep-cba
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Published by The Economic Research Forum (ERF)

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