A Forewarning Indicator System for Financial Crises: The Case of Six Central and Eastern European Countries

Andreou, Irène; Dufrénot, Gilles; Sand, Alain; Zdzienicka, Aleksandra

doi:10.2139/ssrn.988071

Cited by 15 publications

(11 citation statements)

References 28 publications

(11 reference statements)

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“…This paper will specifically examine various factors that may have impacted the weekly changes in Asian currencies during a five month investigation period from September 2008 through January 2009*the apex of the credit crisis as measured by the TED spread. This is notably different from the current literature which often uses either monthly or quarterly exchange rate values before and after a crisis period (Andreou et al, 2009) or only examines currencies relative to the US dollar (Fratzscher, 2009). By examining weekly changes on intra-Asian exchange rates we are able to examine what economic factors, if any, inspired trends in various Asian currencies during this short time frame.…”

Section: Introductionmentioning

confidence: 87%

Asian Exchange Rates during the Credit Crisis: Policies to Avoid Depreciation

Witte

2010

Global Economic Review

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A few policy recommendations become apparent to avoid depreciation relative to other regional currencies when examining intra-Asian exchange rates during the most recent credit crisis. One, avoid large fiscal deficits. Two, avoid high inflation and current account deficits in order to maintain low interest rates to avoid depreciation from the unwinding of the carry trade. Third, build large official reserves or, more importantly, build large reserves of foreign currency assets. Additional results show an unexplained depreciation of the Australian dollar and the Indian rupee and appreciation of the Thai baht as the TED spread widened and credit crisis worsened.Interest rates, flexible exchange rates, credit crisis, carry trade, TED spread,

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Section: Introductionmentioning

confidence: 87%

Asian Exchange Rates during the Credit Crisis: Policies to Avoid Depreciation

Witte

2010

Global Economic Review

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“…5 Additional control variables are included in X k,t , including those found in Andreou et al (2009) as well as foreign currency asset differentials. Controls may include using the TED spread as a barometer of the credit crisis to examine whether individual currency pairs were affected by the depth of the credit crisis.…”

Section: Methodsmentioning

confidence: 99%

“…Such indicators include large growth in the ratio of money supply to nominal gross domestic product (GDP) (which should be associated with depreciation as a result of expansionary monetary policy), large growth in the ratio of money supply to foreign exchange reserves (because credit crises are usually preceded by expansionary monetary policies or sharp declines in reserves accrued through a current account imbalance), a relatively high real exchange rate (as overvaluation can lead to a currency crisis), and recent GDP growth rates (because recessions typically precede a currency crisis). 7 Andreou et al (2009) offer an excellent review of these macroeconomic factors.…”

Section: Methodsmentioning

confidence: 99%

What Effect Did the Credit Crisis of 2008 Have on European Exchange Rates?

Witte

2012

Eastern European Economics

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During the recent credit crisis, European currencies tended to depreciate when the domestic country had relatively high long-term interest rates overshooting traditional uncovered interest rate parity. Absolute interest rate differentials, not innovations to the interest rate differential, drove the depreciation. The degree of the crisis, as measured by the TED spread, amplified this effect. Current account deficits, high inflation, and external debt held by governments or by banks only indirectly drove depreciation by creating higher domestic interest rates. In addition to the interest rate effect, Hungary saw currency depreciation relative to other East European currencies as the TED spread widened.

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“…We also report noise-to-signal ratios and their subcomponents in columns 5-7. As in the work of Andreou et al (2007), we also calculate the composite index as the weighted average of signals issued by stand alone indicators with weights proportional to "usefulness". The index is normalized to have values between 0 and 1.…”

Section: Boom/bust Episode (Within 6 Quarters)mentioning

confidence: 99%

Early warning indicators of asset price boom/bust cycles in emerging markets

Ponomarenko

2013

Emerging Markets Review

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We apply recently developed early warning indicator systems to a cross-section of emerging markets. We find that, with little or no modification, models designed to predict asset price booms/busts in advanced countries may be useful for emerging markets. The concept of monitoring a set of asset prices, real activity and financial indicators is generally found to be efficacious. We also find that, in addition to this set of variables, early warning indicator systems for emerging countries may be augmented with capital flow indicators.

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A Forewarning Indicator System for Financial Crises: The Case of Six Central and Eastern European Countries

Cited by 15 publications

References 28 publications

Asian Exchange Rates during the Credit Crisis: Policies to Avoid Depreciation

Asian Exchange Rates during the Credit Crisis: Policies to Avoid Depreciation

What Effect Did the Credit Crisis of 2008 Have on European Exchange Rates?

Early warning indicators of asset price boom/bust cycles in emerging markets

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