Leading Indicators of Currency Crises

Author/Editor:

Graciela Laura Kaminsky

Publication Date:

July 1, 1997

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:

This paper examines the empirical evidence on currency crises and proposes a specific early warning system. This system involves monitoring the evolution of several indicators that tend to exhibit an unusual behavior in the periods preceding a crisis. When an indicator exceeds a certain threshold value, this is interpreted as a warning “signal” that a currency crisis may take place within the following 24 months. The variables that have the best track record within this approach include exports, deviations of the real exchange rate from trend, the ratio of broad money to gross international reserves, output, and equity prices.

Series:

Working Paper No. 1997/079

Subject:

Central banks Currency crises Currency markets Early warning systems Financial crises Financial markets Foreign exchange International reserves Real exchange rates

Notes:

Also published in Staff Papers, Vol. 45, No. 1, March 1998.

English

Publication Date:

July 1, 1997

ISBN/ISSN:

9781451955866/1018-5941

Stock No:

WPIEA0791997

Pages:

43

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