Indicators of Financial Crises Do Work! An Early-Warning System for Six Asian Countries

39 Pages Posted: 27 Dec 2003

See all articles by Lestano

Lestano

University of Groningen - Faculty of Economics and Business

Jan P. A. M. Jacobs

University of Groningen - Faculty of Economics and Business

Gerard H. Kuper

University of Groningen - Faculty of Economics and Business

Date Written: December 2003

Abstract

Indicators of financial crisis generally do not have a good track record. This paper presents an early warning system for six countries in Asia, in which indicators do work. We distinguish three types of financial crises, currency crises, banking crises and debt crises, and extract four groups of indicators from the literature - external, financial, domestic (real and public), and global indicators - that are likely to affect the probability of financial crises. The significance of the indicator groups is tested in a multivariate logit model on a panel of six Asian countries for the period 1970:01-2001:12. An additional feature is that we examine four different currency crisis dating definitions. A within-sample signal extraction experiment reveals that some currency crises dating schemes outperform others.

Keywords: Financial crises, currency crises, banking crises, debt crises, early warning system, panel data, multivariate logit, factor analysis

JEL Classification: C33, C35, F31, F34, F47

Suggested Citation

Lestano and Jacobs, Jan P.A.M. and Kuper, Gerard H., Indicators of Financial Crises Do Work! An Early-Warning System for Six Asian Countries (December 2003). Available at SSRN: https://ssrn.com/abstract=480021 or http://dx.doi.org/10.2139/ssrn.480021

Lestano (Contact Author)

University of Groningen - Faculty of Economics and Business ( email )

Groningen, 9700 AV
Netherlands

Jan P.A.M. Jacobs

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

Gerard H. Kuper

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

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