Comparing Parametric and Non-parametric Early Warning Systems for Currency Crises in Emerging Market Economies

Fabio Comelli

No 2013/134, IMF Working Papers from International Monetary Fund

Abstract: The purpose of this paper is to compare in-sample and out-of-sample performances of three parametric and non-parametric early warning systems (EWS) for currency crises in emerging market economies (EMs). The parametric EWS achieves superior out-of-sample results compared to the non-parametric EWS, as the total misclassification error of the former is lower than that of the latter. In addition, we find that the performances of the parametric and non-parametric EWS do not improve if the policymaker becomes more prudent. From a policy perspective, the policymaker faces the standard trade-off when using EWS. Greater prudence allows the policymaker to correctly call more crisis episodes, but this comes at the cost of issuing more false alarms. The benefit of correctly calling more currency crises needs to be traded off against the cost of issuing more false alarms and of implementing corrective macroeconomic policies prematurely.

Keywords: WP; crisis probability; foreign exchange; crisis incidence; Early warning systems; emerging markets.; currency crisis; macroeconomic indicator; money stock; Global financial crisis of 2008-2009; International reserves; Currency crises; Global (search for similar items in EconPapers)
Pages: 29
Date: 2013-05-30
References: Add references at CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=40612 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2013/134

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().