Discussion Paper, Turkish Economic Association 2007/1
Logit model and the signal approach are two analysis methods being commonly used to forecast and explain currency crises. Logit model is successful to determine explaining variables of crisis and to calculate the probability of crisis in particular during the period experienced with a crisis. On the other hand, the signal approach aims at determining any possible currency crisis in advance, following some variables showing unusual change over the periods of economic fluctuation and thus it presents a list of leading indicators for possible crises. The results of each method are consistent with economic facts of fluctuation, confusion period being examined. This study is an attempt to specify an ex-post and ex-ante forecast model for currency crisis, using common set of findings of logit model and the signal approach to explain Turkish experience of currency crisis during the period of 1990:01-2002:12. The leading indicators in the common set were used in the signal approach during the period of 2003:01-2005:12 in Turkish economy, but they did not signal. Moreover, it is highlighted that logit model cannot be used in the period during which any currency crisis is not experienced. As a result, both methods are useful to explain currency crises coming true. However, the leading indicators related to the findings of these two methods do not present general facts for each economy and each period.
Currency Crises Predictabilitiy of Currency Crises Logit Model Signal Approach E-post Ex-ante Forecast