Reinhart, Carmen and Goldstein, Morris and Kaminsky, Graciela (2000): Methodology for an Early Warning System: The Signals Approach. Published in: Assessing Financial Vulnerability: An Early Warning System for Emerging Markets, Institute for International Economics (2000)
Download (112kB) | Preview
In this chapter we provide a brief review of the “signals” approach used in this book to assess the probability of a currency or a banking crisis. This methodology was first used to analyze the performance of a variety of macroeconomic and financial indicators around the “twin crises” in Kaminsky and Reinhart (1996) and is described in greater detail in Kaminsky, Lizondo, and Reinhart (1998). In the analysis that follows we focus on a sample of 25 countries over the period 1970 to 1995. The out-of-sample performance of the “signals” approach will be assessed using data for the January 1996-June 1997 period.
|Item Type:||MPRA Paper|
|Original Title:||Methodology for an Early Warning System: The Signals Approach|
|Keywords:||early warning system, crises, banking, currency, financial indicators|
|Subjects:||F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance
F - International Economics > F3 - International Finance > F37 - International Finance Forecasting and Simulation: Models and Applications
F - International Economics > F3 - International Finance > F32 - Current Account Adjustment ; Short-Term Capital Movements
F - International Economics > F3 - International Finance
F - International Economics > F3 - International Finance > F31 - Foreign Exchange
F - International Economics > F3 - International Finance > F36 - Financial Aspects of Economic Integration
|Depositing User:||Carmen Reinhart|
|Date Deposited:||23. Aug 2010 02:20|
|Last Modified:||30. Dec 2015 08:22|
Agenor, Pierre-Richard, Jagdeep S. Bhandari, and Robert P. Flood. 1992. “Speculative Attacks and Models of Balance of Payments Crises.” IMF Staff Papers 39 (June), 357–94.
Bank of International Settlements. 1998. The Maturity, Sectoral, and Nationality Distribution of International Bank Lending. Basle: Bank for International Settlements.
Berg, Andrew, and Catherine Patillo. 1999. “Are Currency Crises Predictable? A Test.” forthcoming in Journal of International Money ad Finance, (August).
Blanco, Herminio, and Peter M. Garber. 1986. “Recurrent Devaluation and Speculative Attacks on the Mexican Peso.” Journal of Political Economy, 94 (February ), 148–66.
Borensztein, Eduardo, and José de Gregorio. 1998. “Devaluations and Inflation After Currency Crises.” Unpublished paper.
Calomiris, Charles, 1997. The Post Modern Bank Safety Net: Lessons from Developed and Developing Countries. Washington, DC: American Enterprise Institute.
Calvo, Guillermo A. 1998. “Varieties of Capital-Market Crises.” In Guillermo A. Calvo and M. King The Debt Burden and Its Consequences for Monetary Policy. New York: MacMillan Press.
Calvo, Guillermo A., Morris Goldstein. 1996. “What Role for the Official Sector? “In Guillermo A. Calvo, Morris Goldstein, and Eduard Hochreiter Private Capital Flows to Emerging Markets After the Mexican Crisis, Washington: Institute for International Economics, 233-82.
Calvo, Guillermo A., and Enrique Mendoza. 1996. “Mexico's Balance-of-Payments Crisis: A Chronicle of A Death Foretold,” Journal of International Economics 41, No. 3/4, (November), 235-264.
Calvo, Sara, and Carmen M. Reinhart. 1996. “Capital Flows to Latin America: Is There Evidence of Contagion Effects?.” In Guillermo A. Calvo, Morris Goldstein, and Eduard Hochreiter Private Capital Flows to Emerging Markets After the Mexican Crisis, Washington: Institute for International Economics, 151–71.
Cantor, Richard, and Frank Packer. 1996a. “Determinants and Impact of Sovereign Credit Ratings,” Federal Reserve Bank of New York Economic Policy Review, (October), 1-15.
Cantor, Richard, and Frank Packer. 1996b. “Sovereign Risk Assessment and Agency Credit Ratings,” European Financial Management, Vol. 2, 247-56.
Caprio, Gerald, Jr. and, Klingebiel, Daniela. 1996a. “Bank Insolvency: Bad Luck, Bad Policy, or Bad Banking?” in Annual World Bank Conference on Development Economics. Washington, DC: The World Bank, 79-104.
.Caprio, Gerald, Jr. and, Klingebiel, Daniela. 1996b. “Bank Insolvency: Cross-country Experiences.” Unpublished paper.
Claessens, Stijn, and Thomas Glaessner. 1997. “Are Financial Sector Weaknesses Undermining the Asian Miracle? Unpublished paper.
Cooper, Richard. 1971. “Currency Devaluation in Developing Countries.” In G. Ranis, Government and Economic Development, New Haven: Yale University Press.
Corsetti, Giancarlo, Paolo Pesenti, and Nouriel Poubini. 1997. "What Caused the Asian Currency and Financial Crisis?". Unpublished paper.
Cumby, Robert, and Sweder van Wijnbergen. 1989. “Financial Policy and Speculative Runs with a Crawling Peg: Argentina 1979–81,” Journal of International Economics 17 (August), 111–27.
Demirguç-Kunt, Asli, and Enrica Detragiache. 1998. “Banking Crises Around the World: Are There Any Common Threads.” IMF Staff Papers, (March).
Diamond, Douglas, and Phillip Dybvig. 1983. “Bank Runs, Liquidity, and Deposit Insurance.” Journal of Political Economy 91 (June), 401-19.
Diebold, Francis and Glen Rudebusch. 1989. “Scoring the Leading Indicators.” Journal of Business 62, No. 3 (July), 369 91.
Dooley, Michael P. 1997. “A Model of Crises in Emerging Markets.” National Bureau of Economic Research Working Paper No. 6300. Cambridge: National Bureau of Economic Research
Dornbusch, Rudiger, Ilan Goldfajn, and Rodrigo O. Valdés. 1995. “Currency Crises and Collapses,” Brookings Papers on Economic Activity, No. 2, 219–95.
Doukas, John. 1989. “Contagion Effect on Sovereign Interest Rate Spreads.” Economic Letters 29, 237-41.
Edwards, Sebastian. 1986. “Are Devaluations Contractionary?” Review of Economics and Statistics 68, 501-08.
Edwards, Sebastian. 1989. Real Exchange Rates, Devaluation, and Adjustment: Exchange Rate Policy in Developing Countries. Cambridge, Massachusetts: MIT Press.
Eichengreen, Barry, Andrew Rose, and Charles Wyplosz. 1995. “Exchange Market Mayhem: The Antecedents and Aftermath of Speculative Attacks.” Economic Policy 21 (October), 249–312.
Eichengreen, Barry, Andrew Rose, and Charles Wyplosz. 1996. “Contagious Currency Crises,” National Bureau of Economic Research Working Paper 5681, (July).
Eichengreen, Barry, Andrew Rose. 1997. “Staying Afloat When the Wind Shifts: External Factors and Emerging-Market Banking Crises.” Unpublished paper.
Eschweiler. 1997. Did the Market See the Asian Crisis Coming? Unpublished paper.
Fischer, Stanley. 1993. “The Role of Macroeconomic Factors on Growth,” Journal of Monetary Economics 32 (3), 395-415.
Frankel, Jeffrey A., and Andrew K. Rose. 1996. “Exchange Rate Crises in Emerging Markets.” Journal of International Economics 41, No. 3/4 (November), 351-68.Frankel, Jeffrey A., and Sergio L Schmukler 1996. “Crisis, Contagion, and Country Funds: Effects on East Asia and Latin America.” In Reuven Glick Managing Capital Flows and Exchange Rates: Perspectives from the Pacific Basin. Cambridge: Cambridge University Press. 232-266.
Furman, Jason, and Joseph E. Stiglitz. 1998. “Economic Crises: Evidence and Insights from East Asia.” Forthcoming in Brookings Papers on Economic Activity 2, (June).
Galbis, Vicente. 1993. “High Real Interest Rates Under Financial Liberalization: Is There a Problem?.” International Monetary Fund Working Paper WP/93/7, January.
Gavin, Michael, and Ricardo Hausman. 1996. “The Roots of Banking Crises: The Macroeconomic Context.” In Banking Crises in Latin America. Washington, DC: Inter-American Development Bank, 27-63.
Gerlach, Stefan, and Frank Smets. 1994. “Contagious Speculative Attacks.” CEPR Discussion Paper No. 1055, (November), London: Center for Economic Policy Research.
Goldstein, Morris. 1996. “Presumptive Indicators/Early Warning Signals of Vulnerability to Financial Crises in Emerging Market Economies.” Unpublished paper.
Goldstein, Morris. 1997. “The Case for an International Banking Standard.” Policy Analyses in International Economics 47, (April), Washington, DC: Institute for International Economics.
Goldstein, Morris. 1998a. “Early Warning Indicators and The Asian Financial Crisis” Unpublished paper.
Goldstein, Morris, 1998b. The Asian Financial Crisis: Causes, Cures, and Systemic Implications.”Policy Analyses in International Economics 55, (June), Washington, DC: Institute for International Economics.
Goldstein, Morris. 1998. “Commentary: The Causes and Propagation of Financial Stability: Lessons for Policy makers. In Federal reserve Bank of Kansas City Maintaining Financial Stability in a Global Economy. Kansas City: Federal Reserve Bank of Kansas City.
Goldstein, Morris. 1998. “Banking Crises: International Experience. In Gerard Caprio, George Kaufman, and Danny Leipziger Preventing Banking Crises. Chicago: Federal Reserve Bank of Chicago; Washington, DC: The World Bank. Forthcoming.
Goldstein, Morris, and Philip Turner. 1996. “Banking Crises in Emerging Economies: Origins and Policy Options.” Bank for International Settlements Economic Paper No. 46, (October). Basle: Bank for International Settlements.
Goldfajn, Ilan, and Rodrigo O.Valdés. 1995 “Balance of Payments Crises and Capital Flows: The Role of Liquidity.” Unpublished paper.
Goldfajn, Ilan, and Rodrigo O.Valdés. 1998. “Are Currency Crises Predictable?,” European Economic Review, forthcoming.
Honohan, Patrick. 1997. “Banking System Failures in Developing and Transition Countries: Diagnosis and Prediction.” Bank for International Settlements Working Paper No. 39, (January).
International Monetary Fund. 1997a. International Capital Markets, (September). Washington: International Monetary Fund.
International Monetary Fund. 1998a. World Economic Outlook, (May). Washington: International Monetary Fund.
International Monetary Fund. 1998b. International Capital Markets, (September). Washington: International Monetary Fund.
International Monetary Fund. 1998c. World Economic Outlook, (October). Washington: International Monetary Fund.
Kamin, Steven B.. 1988. “Devaluation, External Balance, and Macroeconomic Performance: A Look at the Numbers,” Studies in International Finance, No. 62, (August). Princeton: Princeton University, Department of Economics, International Finance Section.
Kamin, Steven B., and John H. Rogers. 1997. “Output and the Real Exchange Rate in Developing Countries: An Application to Mexico,” Unpublished paper.
Kaminsky, Graciela L. 1998. “Currency and Banking Crises: A Composite Leading Indicator.” International Finance Discussion Paper Series No. 629 (December). Washington: Board of Governors of the Federal Reserve.
Kaminsky, Graciela L., and Carmen M. Reinhart. 1996. “The Twin Crises: The Causes of Banking and Balance-of-Payments Problems,” International Finance Discussion Paper No. 544, (March). Washington: Board of Governors of the Federal Reserve. Forthcoming in American Economic Review.
Kaminsky, Graciela, and Carmen M. Reinhart. 1998a. “Financial Crises in Asia and Latin America: Then and Now.” American Economic Review 88, No.2 ( May). 444-48.
Kaminsky, Graciela, and Carmen M. Reinhart. 1998b. “On Crises, Contagion, and Confusion.” Unpublished paper.
Kiguel, Miguel A., and Nita Ghei. 1992. “Devaluation in Low-Inflation Economies,” Policy Research Working Paper 1224. Washington: The World Bank.
Krueger, Anne O. 1978. Liberalization Attempts and Consequences, Cambridge, MA: Ballinger.
Krugman, Paul. 1979. “A Model of Balance of Payments Crises.” Journal of Money, Credit, and Banking 11 (August), 311–25.
Krugman, Paul. 1998. “What Happened to Asia?.” Unpublished paper.
Larraín, Guillermo, Helmut Reisen, and Julia von Maltzan. 1997. “Emerging Market Risk and Sovereign Credit Ratings,” OECD Development Centre Technical Papers No. 124, (April). Paris: The Organisation for Economic Co-operation and Development.
Lee, Suk Hun. 1993. “Are the Credit Ratings Assigned by Bankers Based on the Willingness of Borrowers to Repay?,” Journal of Development Economics 40, (April), 349-59.
Leiderman, Leonardo, and Alfredo Thorne. 1996. In Private Capital Flows to Emerging Markets After the Mexican Crisis, ed. by Guillermo A. Calvo, Morris Goldstein, and Eduard Hochreiter Washington, DC: Institute for International Economics, 1–43.
Lindgren, Carl-Johan, Gillian Garcia, and Matthew Saal. 1996. Bank Soundness and Macroeconomic Policy. Washington, DC: International Monetary Fund.
Lizondo, Saul, and Peter J. Montiel. 1989. “Contractionary Devaluation in Developing Countries: An Analytical Overview.” IMF Staff Papers 36 (March), 182-227.
Meese, Richard A., and Kenneth Rogoff. 1983. “Empirical Exchange rate Models of the Seventies: Do They Fit Out of Sample?” Journal of International Economics 14 (February), 3-24.
Mishkin, Frederic S. 1996. “Understanding Financial Crises: A Developing Country Perspective,” in Annual World Bank Conference on Development Economics, Washington, DC: World Bank, 29-62.
Moore, Geoffrey H. 1959. “The 1957-58 Business Contractions: New Model or Old? American Economic Review 49 (May), 292-308.
Morley, Samuel A.1992. “On the Effect of Devaluation During Stabilization Programs in LDCs,” Review of Economics and Statistics 74 No.1 (February), 21-7.
Obstfeld, Maurice, and Kenneth Rogoff. 1995. “The Mirage of Fixed Exchange Rates,” Journal of Economic Perspectives 9, (Fall), 73-96.
Radelet, Steven, and Jeffrey Sachs. 1998. “The East Asian Financial Crisis: Diagnosis, Remedies, Prospects,”Brookings Papers on Economic Activity, 1. Rojas-Suarez, Liliana. 1998. “Early Warning Indicators of Banking Crises: What Works for Emerging Markets? With Applications to Latin America,” Unpublished paper.
Rojas-Suarez, Liliana, and Steven R. Weisbrod. 1995. Financial Fragilities in Latin America: The 1980s and 1990s. International Monetary Fund Occasional Paper 132, (October). Washington,DC: International Monetary Fund.
Rose, Andrew K., and Lars E.O. Svensson. 1994. “European Exchange Rate Credibility Before the Fall.” European Economic Review 38 (May), 1185-1216.
Sachs, Jeffrey, Aaron Tornell and Andres Velasco. 1996. “Financial Crises in Emerging Markets: The Lessons From 1995.” Brookings Papers on Economic Activity, No. 1, 147–215.
Stock, James H., and Mark W. Watson. 1989. “New Indices of Coincident and Leading Economic Indicators.” NBER Macroeconomics Annual, 351 93.
Sundararajan, V. and Baliño, Tomas. 1991. Banking Crises: Cases and Issues. Washington, DC: International Monetary Fund.
Valdés, Rodrigo O. 1997. “Emerging Markets Contagion: Evidence and Theory.” Unpublished paper.
Velasco, Andres. 1987. “Financial and Balance of Payments Crises: A Simple Model of the Southern Cone Experience.” Journal of Development Economics 27 (October ), 263–83.
Wolf, Holger C. 1997. “Regional Contagion Effects in Emerging Markets.” Princeton University Working Papers in International Finance, G-97-03, (October).
Zarnowitz, Victor. 1992. Business Cycles: Theory, History, Indicators, and Forecasting. Chicago: University of Chicago