The Efficiency of Early Warning Indicators for Financial Crises

Diplomarbeit, die am 14.02.2000 erfolgreich an einer Universität in Deutschland im Fachbereich Wirtschaftswissenschaften und Statistik eingereicht wurde. Abstract: The banking and currency crises of the last two decades inflicted substantial financial, economic, and social damage on the countries in which they originated. In this work, the efficiency of early warning indicators for these disastrous economic events is evaluated. An analysis of the traditional and recent literature on currency crises is performed in order to extract potential early warning indicators that are suggested by theory. Alongside others, these candidate indicators are tested in alternative empirical studies that are reviewed in this work. The results are mixed, but somewhat encouraging for further research in this field. Furthermore, the analysis is extended to a critique of systems of early warning indicators currently used by international institutions. Table of Contents: 1.|Introduction|1 2.|The Currency Crisis Literature as a Reference Point for the Identification of Early Warning Indicators|4 2.1|The Traditional Theory|5 2.2|Second Generation Models|11 2.3|A Cross-generation Framework Proposition|19 2.4|Early Warning Indicators as Suggested by Theory|22 3.|The Empirical Assessment of Early Warning Indicators|24 3.1|Univariate Indicators for Financial Crises|24 3.1.1|Cross-Country Regressions|26 3.1.2|Multivariate Probit Models|35 3.1.3|The Signals Approach|40 3.2|Composite Leading Indicators for Financial Crises|48 4.|A Critique of Early Warning Indicators Used in Practice|53 5.|Conclusion|64 |Appendix|68 |Bibliography|69...