Autocorrelation-Corrected Standard Errors in Panel Probits : An Application to Currency Crisis Prediction

Author/Editor:

Andrew Berg ; Rebecca N. Coke

Publication Date:

March 1, 2004

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Many estimates of early-warning-system (EWS) models of currency crisis have reported incorrect standard errors because of serial correlation in the context of panel probit regressions. This paper documents the magnitude of the problem, proposes and tests a solution, and applies it to previously published EWS estimates. We find that (1) the uncorrected probit estimates substantially underestimate the true standard errors, by up to a factor of four; (2) a heteroskedasicity- and autocorrelation-corrected (HAC) procedure produces accurate estimates; and (3) most variables from the original models remain significant, though substantially less so than had been previously thought.

Series:

Working Paper No. 04/39

Subject:

English

Publication Date:

March 1, 2004

ISBN/ISSN:

9781451845860/1018-5941

Stock No:

WPIEA0392004

Format:

Paper

Pages:

21

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