The Evidence and Impact of Financial Globalization

Chapter 35

A Perspective on Predicting Currency Crises

R.P. Flood*,^†, N.P. Marion^‡ and J. Yepez^†

^*IMF, Washington, DC, USA

^†University of Notre Dame, South Bend, IN, USA

^‡Dartmouth College, Hanover, NH, USA

Outline

Introduction

Literature Survey

A Model of Currency Crises

Data Generation

Devaluation Crises

Estimating Crisis Probabilities

Method 1: Structural Method

Method 2: Logit

Method 3: OLS Method

Accuracy of the Estimated Probabilities

Conclusion

Appendix: Data Used

References

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 bootstrap experiment designed to evaluate the measurement techniques. In our ...