Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153147
Authors: 
Bussière, Matthieu
Year of Publication: 
2007
Series/Report no.: 
ECB Working Paper 713
Abstract: 
Although many papers have already proposed empirical models of currency crises, the timing of such crises has received relatively little attention so far. Most papers use indeed a static specification and impose the same lag structure across all explanatory variables. This, by construction, prevents from specifically timing the crisis signals sent by the leading indicators. The objective here is to fill this gap by considering a set of dynamic discrete choice models. The first contribution is to identify how early in advance each explanatory variable sends a warning signal. Some indicators are found to signal a crisis in the very short run while others signal a crisis at more distant horizons. The second contribution is to show that state dependence matters, albeit mostly in the short run. The results have important implications for crisis prevention in terms of the timeliness and usefulness of the envisaged policy response.
Subjects: 
balance of payments
currency crises
debt ratios
Dynamic discrete choice
emerging markets
panel data
sudden stop
JEL: 
C23
F15
F14
Document Type: 
Working Paper

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