Publication: Early warning systems for currency crises: Amultivariate extreme value approach
Issued Date
2013-09-01
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ISSN
02615606
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2-s2.0-84877909976
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Mahidol University
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SCOPUS
Bibliographic Citation
Journal of International Money and Finance. Vol.36, (2013), 151-171
Suggested Citation
Phornchanok Cumperayot, Roy Kouwenberg Early warning systems for currency crises: Amultivariate extreme value approach. Journal of International Money and Finance. Vol.36, (2013), 151-171. doi:10.1016/j.jimonfin.2013.03.008 Retrieved from: https://repository.li.mahidol.ac.th/handle/20.500.14594/31699
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Title
Early warning systems for currency crises: Amultivariate extreme value approach
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Abstract
We 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.