Leading Indicators of Balance-of-Payments Crises: A Partial Review
Bank of England Working Paper No. 171
55 Pages Posted: 27 May 2003
Date Written: December 2002
This paper reviews the theory of balance-of-payments crises, and its implications for identifying potential leading indicators of crises. It discusses and evaluates three different empirical approaches to balance-of-payments crises: The signalling, discrete-choice, and structural approaches. Despite claims of success in predicting currency crises, we note some serious theoretical and empirical qualifications which throw these claims into question. Nevertheless, we conclude that a range of indicators supported by theory may still be useful for policy-makers interested in preventing financial instability.
Keywords: Balance-of-payments crisis, leading indicators
JEL Classification: F31, F47
Suggested Citation: Suggested Citation