WERE THE CURRENCY CRISES IN EASTERN EUROPE (1995-2008) PREDICTABLE? AN EMPIRICAL APPROACH

Dimitrios DAPONTAS

Abstract


This paper is based on finding the characteristics that could have made crises in Central and Eastern Europe occurred n the pats forecastable based on lagged time series analysed as a set of binary models estimated with the extreme value approach which is suitable for irregular non stationary data on rare events. This method has been used in order to predict the possibility of rare events such as earthquakes, floods or other unpredictable by trend disasters. I use this method for the very first time in macroeconomics and especially in currency crisis events. The sample consists of five countries of central and Eastern Europe (Belarus, Bulgaria, Moldova, Romania, and Ukraine respectively) for a thirteen year period (1995-2008). The results show that explanatory variables can work as a predictor in the case of Bulgaria, Belarus and Moldova but not in the cases of Romania and Ukraine.

Full text: PDF

Keyword(s)


currency crisis, developing economies, structural reforms

JEL Codes


F41, P33

References


Bilson L. 1979. Leading indicators in currency devaluations, Columbia journal of World business, vol.14 (winter), pp. 62-76.

Blanco H. and Garber P., 1986. Recurrent evaluation and speculative attacks on the Mexican peso, Journal of political economy, vol.194, pp. 148-166.

Breuer J. 2004. An Exegesis on Currency and Banking Crises, Journal of Economic Surveys Volume 18, Issue 3, pp. 293–320.

Cagan P., 1956.The Monetary Dynamics of Hyperinflation. Studies in the Quantity Theory of Money. Chicago: University of Chicago Press.

Castillo F. 2006 Predicting Currency crises alternative approaches and applications to the Philippines, Dissertations and Theses collection. paper 34.Sinagapore management university.

Chionis D. and Liargovas P., 2003. Currency crises in transition economies: An empirical analysis, Akademai kiado, Budapest.

Copeland L., Exchange rates and international finance, 5th edition, pp. 446-447 and pp.450-451

Cuaresma j. and Slacik T. 2007. Determinants of currency crises: A conflict of generations? , Focus on European Integration 2008, Bank of Austria.

Cumby R. and Van Weinberger F., 1989. Financial policy and speculative runs with a crawling peg: Argentina 1979-1981, journal of international economic, vol. 17.

Dapontas D. 2008 Currency crises a fourth generation approach, working paper, University of Peloponnese.

Dapontas D. 2010, Currency crises emphasized on central and eastern European countries, PhD Thesis (in Greek), University of Peloponnese.

Edwards, S., 2001. Does the Current Account Matter? NBER Working Paper No. W8275.

Eichengreen B., Rose A. and Wyplosz C., 1995. Exchange market Mayhem: The antecedents and aftermath of speculative attacks, Economic policy, Vol. 21, pp. 249-312.

Esquivel G. and Larrin. B., 1998. Explaining Currency Crises. John F. Kennedy Faculty Research WP Series R98-07.

Flood, R. and Marion, N., 1999. Perspectives on the Recent Currency Crisis Literature, International Journal of Finance and Economics, 4(1), pp. 1-26.

Frankel J. and Rose A., 1996.Currency crises in emerging markets: An empirical treatment. IMF, 1996.

Kaminsky G., Lizondo S. and Reinhart C. M., 1998. Leading indicators of currency crises, IMF staff papers.

Klein M. , Marion N.,1994.Explaining the duration of exchange rate pegs, NBER working paper no. 4651 Cambridge Massachusetts: National bureau of economic research.

Krznar, I., 2004. Currency crisis: Theory and practice with application to Croatia, August 2004, working paper, W-12, Croatian National Bank.

Liargovas P., Dapontas D., 2008.Currency crises in transition economies some further evidence. Journal of economic issues, volume XLII, No. 4, pp. 1078-1100.

Salant S., Henderson D., 1978. Market anticipation of government policy and the price of gold, Journal of political economy, vol. 86, pp. 627-48.

Sasin M., 2001.Predicting Currency Crises: the Ultimate Significance of Macroeconomic Fundamentals in Linear Specifications with Nonlinear Extensions. CASE S&A 224.

Shimpalee P. and Breuer J. 2006. Currency crises and institutions, Journal of money and finance, 25, pp. 125-145.