Article | Finance area | Year 2013 | |
Early warning systems for currency crises: A multivariate extreme value approachby Pornchanok Cumperayot; Roy Kouwenberg | |
Journal of International Money and Finance 36(TBA), p.151-171 |
AbstractWe apply extreme value theory to assess the tail dependence between three currency crisis measures and 18 economic indicators commonly used for predicting crises. In our pooled sample of 46
countries in the period 1974–2008, we find that nearly all pairs of variables are asymptotically independent: in the limit, extreme values of economic indicators are not followed by severe currency crashes. Our findings may explain the poor performance of existing early warning systems for currency crises. However, we do find
that economic variables with stronger extremal association with the exchange rate have better crisis prediction performance, both in-sample and out-of-sample. 2013 Elsevier Ltd. All rights reserved.
Keywords: currency crises, crisis prediction, exteme value theory, emerging markets |