Journal Description Editorial Committee How to Subscribe Forthcoming Articles Staff Papers Archive Copyright Information Use the free Adobe Acrobat Reader to view pdf files Free Email Notification Receive emails when we post new
items of interest to you. |
|
|
Safety from Currency Crashes By Kent Osband and Caroline Van Rijckeghem
Full Text of this Article (PDF
180 K)
Abstract: As part of a proposed two-stage early warning system, we estimate "safety zones" for fundamentals under which currency crashes are unlikely to occur. We depart from traditional regression-based early warning systems and instead estimate the set of fundamentals for which currency crises never occurred and label this environment "safe or near-safe." For a sample of emerging markets from 1985 through 1998, we are able to classify 47 percent of the observed tranquil environments as safe or near-safe on a 12-month horizon, based on criteria in which external debt and reserves feature heavily. Nonparametric tests indicate that environments we identified as safe or near-safe bear less than a 1 percent risk of a currency crash. The results also pass a number of out-of-sample tests. [JEL: F31, F47]
© 2000 International Monetary Fund
|