Designing an early warning system for currency crises: an empirical treatment

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Abstract:

This article investigates the predictive power of qualitative response models that can serve as the basis for an early warning system for currency crises. It employs a signals framework that monitors the behaviour of key economic variables and issues a warning when their values exceed certain critical levels. The analysis is carried out for a parsimonious specification with high-frequency data. Taking Egypt as a case study, it is shown that this class of probability models captures to a good extent the turbulence in the foreign exchange market and the onset of crises.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036840802600657

Affiliations: Faculty of Economics and Political Science, Department of Economics, Cairo University, Cairo 12211, Egypt

Publication date: May 1, 2011

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