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Title:Robust Lessons about Practical Early Warning Systems PDF Logo
Authors:Sawischlewski, Katja
Menkhoff, Lukas
Beckmann, Daniela
Issue Date:2005
Series/Report no.:Proceedings of the German Development Economics Conference, Kiel 2005 / Verein für Socialpolitik, Research Committee Development Economics 3
Abstract:Early warning systems (EWSs) are subject to restrictions that apply to exchange rates in general: fundamentals matter but their influence is small and unstable. Keeping this in mind, five lessons emerge : First, EWSs have robust forecasting power and thus help policy-makers to prevent crises. Second, among competing crisis definitions there is one which is most practical. Third, take a logit model to condense information from various fundamental variables. Fourth, add a regional contagion dummy to the standard set of variables. Fifth, one may be tempted to address instability over time and countries by taking shorter samples and regional EWSs.
Subjects:early warning system
currency crises
emerging markets
JEL:F31
F33
F37
Document Type:Conference Paper
Appears in Collections:Proceedings of the German Development Economics Conference, 2005 (Kiel)

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