An Optimal Early Warning System for Currency Crises Under Model Uncertainty
19 Pages Posted: 31 Jul 2019 Last revised: 28 Aug 2019
Date Written: March 10, 2019
This paper assesses several early warning (EWS) models of financial crises to propose a 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 forecast from individual models allowing for time-varying weights. Taking Egypt as a case study and focusing only on currency crises, our findings show that combined forecast (DMA- and EW-based EWS) to account for uncertainty perform better than other competing models in both in-sample and out-of-sample forecasts.
Keywords: Financial Crises, Currency Crises, Early Warning, Uncertainty, Egypt
JEL Classification: E44, F31, F47, G01
Suggested Citation: Suggested Citation