IMF Working Papers

A Perspectiveon Predicting Currency Crises

By Robert P Flood, Juan Yepez, Nancy P. Marion

October 1, 2010

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Robert P Flood, Juan Yepez, and Nancy P. Marion A Perspectiveon Predicting Currency Crises, (USA: International Monetary Fund, 2010) accessed December 3, 2024
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

Currency crises are difficult to predict. It could be that we are choosing the wrong variables or using the wrong models or adopting measurement techniques not up to the task. We set up a Monte Carlo experiment designed to evaluate the measurement techniques. In our study, the methods are given the right fundamentals and the right models and are evaluated on how closely the estimated predictions match the objectively correct predictions. We find that all methods do reasonably well when fundamentals are explosive and all do badly when fundamentals are merely highly volatile.

Subject: Central banks, Conventional peg, Currency crises, Exchange rate adjustments, Exchange rates, Financial crises, Foreign exchange, International reserves

Keywords: Absolute error, Asia and Pacific, Conventional peg, Crisis model, Crisis probability, Currency crises, Currency-crisis episode, Dependent variable, Devaluation, Europe, Exchange rate, Exchange rate adjustments, Exchange rates, Fixed exchange rate, International reserves, Monte Carlo, OLS coefficient, OLS estimate, OLS estimator, OLS regression, Speculative attacks, WP

Publication Details

  • Pages:

    28

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2010/227

  • Stock No:

    WPIEA2010227

  • ISBN:

    9781455208920

  • ISSN:

    1018-5941