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Robust Lessons about Practical Early Warning Systems

Katja Sawischlewski, Lukas Menkhoff and Daniela Beckmann ()

No 3, Proceedings of the German Development Economics Conference, Kiel 2005 from Verein für Socialpolitik, Research Committee Development Economics

Abstract: Early warning systems (EWSs) are subject to restrictions that apply to exchange rates in general: fundamentals matter but their influence is small and unstable. Keeping this in mind, five lessons emerge : First, EWSs have robust forecasting power and thus help policy-makers to prevent crises. Second, among competing crisis definitions there is one which is most practical. Third, take a logit model to condense information from various fundamental variables. Fourth, add a regional contagion dummy to the standard set of variables. Fifth, one may be tempted to address instability over time and countries by taking shorter samples and regional EWSs.

Keywords: early warning system; currency crises; emerging markets (search for similar items in EconPapers)
JEL-codes: F31 F33 F37 (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-fmk, nep-for and nep-ifn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Journal Article: Robust lessons about practical early warning systems (2006) Downloads
Working Paper: Robust Lessons about Practical Early Warning Systems (2005) Downloads
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