BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 4/2007:
An "almost-too-late" warning mechanism for currency crises
Jesıs Crespo Cuaresma ()
and Tomas Slacik ()
Abstract: We propose exploiting the term structure of relative
interest rates to obtain estimates of changes in the timing of a currency
crisis as perceived by market participants. Our indicator can be used to
evaluate the relative probability of a crisis occurring in one week as
compared to a crisis happening after one week but in less than a month. We
give empirical evidence that the indicator performs well for two important
currency crises in Eastern Europe: the crisis in the Czech Republic in 1997
and the Russian crisis in 1998.
Keywords: currency crisis; term structure of interest rates; transition economies; (follow links to similar papers)
JEL-Codes: E43; F31; F34; (follow links to similar papers)
27 pages, March 2, 2007
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