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2016 | 2(6) | 5-22

Article title

Comparing the Performance of Logit and Probit Early Warning Systems for Currency Crises in Emerging Market Economies

Authors

Content

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Languages of publication

EN

Abstracts

EN
We compare how logit (fixed effects) and probit early warning systems (EWS) predict in-sample and out-of-sample currency crises in emerging markets (EMs). We look at episodes of currency crises that took place in 29 EMs between January 1995 and December 2012. Stronger real GDP growth rates and higher net foreign assets signifi cantly reduce the probability of experiencing a currency crisis, while high levels of credit to the private sector increase it. We find that the logit and probit EWS out-of-sample performances are broadly similar, and that the EWS performance can be very sensitive both to the size of the estimation sample, and to the crisis definition employed. For macroeconomic policy purposes, we conclude that a currency crisis definition identifying more rather than less crisis episodes should be used, even if this may lead to the risk of issuing false alarms.

Contributors

author
  • International Monetary Fund

References

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Document Type

Publication order reference

Identifiers

ISSN
2353-6845

YADDA identifier

bwmeta1.element.desklight-4cc31efd-ab73-4025-b677-91b69030507a
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