Autocorrelation-Corrected Standard Errors in Panel Probits: An Application to Currency Crisis Prediction
March 1, 2004
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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.
Subject: Currency crises, Early warning systems, Econometric analysis, Estimation techniques, Export performance, Financial crises, Foreign exchange, International trade, Real exchange rates
Keywords: bootstrap estimate, bootstrap estimator, coefficient estimate, covariance estimator, Currency crises, Currency crisis, Early warning systems, early-warning systems, Estimation techniques, Export performance, HAC estimate, panel probit, Real exchange rates, serial correlation, standard error estimate, WP
Pages:
21
Volume:
2004
DOI:
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Issue:
039
Series:
Working Paper No. 2004/039
Stock No:
WPIEA0392004
ISBN:
9781451845860
ISSN:
1018-5941
