A Perspectiveon Predicting Currency Crises
October 1, 2010
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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
Pages:
28
Volume:
2010
DOI:
Issue:
227
Series:
Working Paper No. 2010/227
Stock No:
WPIEA2010227
ISBN:
9781455208920
ISSN:
1018-5941
