An Optimal Early Warning System for Currency Crises Under Model Uncertainty

21 Pages Posted: 31 Jul 2019 Last revised: 29 Feb 2020

See all articles by Mamdouh Mohamed

Mamdouh Mohamed

Minufia University

Hany Abdel-Latif

Swansea University; Economic Research Forum; The Economic Society

Date Written: March 10, 2019

Abstract

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 equal weighting (EW) and dynamic model averaging (DMA) 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 (EW- and DMA-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

Mohamed, Mamdouh and Abdel-Latif, Hany, An Optimal Early Warning System for Currency Crises Under Model Uncertainty (March 10, 2019). Available at SSRN: https://ssrn.com/abstract=3428016 or http://dx.doi.org/10.2139/ssrn.3428016

Mamdouh Mohamed

Minufia University ( email )

Minufia
Egypt

Hany Abdel-Latif (Contact Author)

Swansea University ( email )

School of Management
Bay Campus
Swansea, SA1 8EN
United Kingdom

HOME PAGE: http://www.swansea.ac.uk/

Economic Research Forum ( email )

21 Al-Sad Al-Aaly St.
(P.O. Box: 12311)
Dokki, Cairo
Egypt

HOME PAGE: http://erf.org.eg

The Economic Society ( email )

School of Management
Swansea University
Swansea, Swansea SA1 8EN
United Kingdom

HOME PAGE: http://theeconomicsociety.org

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