An arrival of a currency crisis can be anticipated through a comprehensive and properly specified Early Warning System (“EWS”). The costs that entail with experiencing a currency crisis far exceed the costs of spending a considerable amount of time to developing an EWS. In a report done by the IMF(1998), they estimated that emerging economies suffer an 8% cumulative loss in real output during a severe currency crisis. Likewise, evidence suggests that a simple look at traditional market indicators of currency and default risks will not provide much advance warning of an impending currency crisis. In a study done by Sy (2003), he found that the performance of interest rate spreads and Credit Ratings were disappointing in the run up to the Asian Financial Crisis. Likewise, Goldstein Kaminksy and Reinhart (2000) showed that neither interest rate spreads nor sovereign credit ratings ranked high in a long list of Early Warning indicators of currency crises.
exchange rate, Index of Speculative Pressure, international reserves, interest rates, vector autoregression, VAR
MSc in Finance
Finance and Financial Management | Public Economics
CASTILLO, Fernando Antonio IV.
Predicting a Currency Crisis Alternative Approaches and Applications to the Philippines. (2006). Dissertations and Theses Collection (Open Access).
Available at: http://ink.library.smu.edu.sg/etd_coll/34