Munich Personal RePEc Archive

Measuring and predicting currency disturbances in Croatia: the “signals” approach

Ahec Šonje, Amina and Babić, Ante (2002): Measuring and predicting currency disturbances in Croatia: the “signals” approach. Published in: Ekonomski pregled , Vol. 54, No. 1-2 (February 2003): pp. 3-37.

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The “signals” approach is used in constructing an effective system of early warning indicators heralding currency disturbances. This sistem monitors the behaviour of various macroeconomic and financial variables that tend to exhibit an unusual in the periods preceding a disturbance or crisis. The paper also proposes composite leading indicators comprising the best signal indicators. The performance of the indicators reveals that the two disturbances were different: the 1999 one came at the end of a banking crisis, while the 2001 disturbance was brought about by a combination of the domestic monetary relaxation and partial capital account liberalization. Since Croatia signed a Stabilization and Association Agreeement with the EU that foresees further capital account liberalization, this system of early warning indicators can help the Croatian National Bank and other relevant policymakers along the way.

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