An almost‐too‐late warning mechanism for currency crises¹

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe propose exploiting the term structure of relative interest rates to obtain estimates of changes in the timing of a currency crisis as perceived by market participants. Our indicator can be used to evaluate the relative probability of a crisis occurring in one week as compared to a crisis happening after one week but in less than a month. We give empirical evidence that the indicator performs well for two important currency crises in Eastern Europe: the crisis in the Czech Republic in 1997 and the Russian crisis in 1998.

The Asian Crisis: What Did Local Stock Markets Expect?

“…Probably the roughest -but earliest -attempt is that of Ferri, Liu and Stiglitz (1999), who look into the informational value embedded in the sovereign ratings of Asian countries prior to the 1997 crisis and conclude that credit rating agencies failed to predict the emergence of the crisis. More recently Crespo Cuaresma and Slacik (2007) exploit the term structure of interest rates to obtain estimates of changes in the timing of the currency crises in the Czech Republic in 1997 and Russia in 1998. They nd their indicator to have a very good short-term predictor power.…”