Taking Egypt as a case study and focusing only on currencycrises, ourfindings show that combined forecast (EW- and DMA-based EWS), to account for uncertainty,perform better than other competing models in both in-sample and out-of-sample forecasts.
📌 3 Key Takeaways
🎯
Objective & Hypothesis:This paper assesses several early warning (EWS) models offinancial crises to propose a model that canpredict the incidence of a currency crisis in developing countries.
📊
Key Findings & Data:For this purpose, we employ the equalweighting (EW) and dynamic model averaging (DMA) approaches to combine forecast from individualmodels allowing for time-varying weights.
💡
Conclusion & Impact:Taking Egypt as a case study and focusing only on currencycrises, ourfindings show that combined forecast (EW- and DMA-based EWS), to account for uncertainty,perform better than other competing models in both in-sample and out-of-sample forecasts.
🔬Design:Modeling & Simulation
📍Scope:Comprehensive Sample
⚙️Variables:Domain Parameters
Özet
This paper assesses several early warning (EWS) models offinancial crises to propose a model that canpredict the incidence of a currency crisis in developing countries. For this purpose, we employ the equalweighting (EW) and dynamic model averaging (DMA) approaches to combine forecast from individualmodels allowing for time-varying weights. Taking Egypt as a case study and focusing only on currencycrises, ourfindings show that combined forecast (EW- and DMA-based EWS), to account for uncertainty,perform better than other competing models in both in-sample and out-of-sample forecasts.
🔖
Cite This Article
ABDELSALAM, M. A. M., ABDEL-LATİF, H. (2020). An optimal early warning system for currency crises under modeluncertainty. Central Bank Review, Cilt: 20 - Sayı: 3, 99–107. https://ajindex.com/articles/212364
Abiad, M.A., 2003. Early Warning Systems: A Survey and a Regime-SwitchingApproach. International Monetary Fund number 3-32.
Adams, J., Metwally, A., 2019. Identifying currency crises indicators: the case of Egypt. Afr. J. Econ. Manag. Stud. 10 (2). Al-Assaf, G., 2017. An early warning system for currency crisis: a comparative studyfor the case of Jordan and Egypt. Int. J. Econ. Financ. Issues 7 (3), 43-50.
Ari, A., Cergibozan, R., 2018. Currency crises in Turkey: an empirical assessment.Res. Int. Bus. Finance 46, 281-293.
Berg, A., Borensztein, E., Pattillo, C., 2005. Assessing early warning systems: howhave they worked in practice? IMF Staff Pap. 52 (3), 462-502.
Berg, A., Pattillo, C., 1999. Predicting currency crises: the indicators approach and analternative. J. Int. Money Finance 18 (4), 561-586.
Budsayaplakorn, S., Dibooglu, S., Mathur, I., 2010. Can macroeconomic indicatorspredict a currency crisis? evidence from selected southeast asian countries.Emerg. Mark. Finance Trade 46 (6), 5-21.
Bussiere, M., Fratzscher, M., 2006. Towards a new early warning system offinancialcrises. J. Int. Money Finance 25 (6), 953-973.
Candelon, B., Dumitrescu, E.-I., Hurlin, C., 2012. How to evaluate an early-warningsystem: toward a unified statistical framework for assessingfinancial crisesforecasting methods. IMF Econ. Rev. 60 (1), 75-113.
Casu, B., Clare, A., Saleh, N., 2011. Towards a New Model for Early Warning Signalsfor Systemic Financial Fragility and Near Crises: an Application to Oecd Countries. Chang, R., Velasco, A., 1999. Liquidity crises in emerging markets: theory and policy.NBER Macroecon. Annu. 14, 11-58.
Comelli, F., 2014. Comparing parametric and non-parametric early warning systemsfor currency crises in emerging market economies. Rev. Int. Econ. 22 (4),700-721.
Demirgüç-Kunt, A., Detragiache, E., 2000. Monitoring banking sector fragility: amultivariate logit approach. World Bank Econ. Rev. 14 (2), 287-307.
Diebold, F.X., Lee, J.-H., Weinbach, G.C., 1994. Regime switching with time-varyingtransition probabilities. Business Cycles: Durations, Dynamics, and Forecasting1, 144-165.
Edwards, S., Santaella, J., 1993. Devaluation controversies in the developing coun-tries: lessons from the bretton woods era. In: A Retrospective on the BrettonWoods System: Lessons for International Monetary Reform. University of Chi-cago Press, pp. 405-460.
Eichengreen, B., Rose, A.K., Wyplosz, C., Dumas, B., Weber, A., 1995. Exchange Market Mayhem: the Antecedents and Afterm