Leading Indicators of Currency Crises
43 Pages Posted: 8 Dec 2016 Last revised: 22 Dec 2016
Date Written: 1997
This paper examines the empirical evidence on currency crises and proposes a specific early warning system. This system involves monitoring the evolution of several indicators that tend to exhibit an unusual behavior in the periods preceding a crisis. When an indicator exceeds a certain threshold value, this is interpreted as a warning "signal" that a currency crisis may take place within the following 24 months. The variables that have the best track record within this approach include exports, deviations of the real exchange rate from trend, the ratio of broad money to gross international reserves, output, and equity prices.
Keywords: currency crises, banking crises, exchange rate overvaluation, early warnings
JEL Classification: E5, F3, F4, G01
Suggested Citation: Suggested Citation