An optimal early warning system for currency crises under model uncertainty

Abdelsalam, Mamdouh Abdelmoula M.; Abdel-Latif, Hany

doi:10.1016/j.cbrev.2020.03.002

Cited by 5 publications

(3 citation statements)

References 29 publications

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“…Liu and Song [10] established an early warning model based on fuzzy C-means clustering and adaptive regression and proved through empirical research that the model is superior to discriminant analysis and forward neural network methods. Abdelsalam and Abdel-Latif [11] used data envelopment analysis to provide decision-makers with accurate prediction results. In addition, the study of financial distress early warning is continued through organic combinatorial mathematical methods [12] or continuous improvement of existing methods.…”

Section: Related Workmentioning

confidence: 99%

Financial Crisis Early Warning Based on Panel Data and Dynamic Dual Choice Model

2021

Complexity

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Based on the research of currency crisis pressure index, bank crisis pressure index, and asset bubble crisis pressure index, this paper introduces an external shock pressure index reflecting the impact of global economic changes on economy and synthesizes systemic financial crisis pressure based on the above four pressure indexes; then, all the alternative early warning indicators and the systemic risk pressure index constructed in this paper were tested for Granger causality. We build financial systemic risk pressure indexes, including currency crisis pressure (CCP) banking crisis pressure (BCP) index, bubble crisis pressure (PBP) index, and external shock pressure (ESP) index to predict financial crises. Finally, four indicators that have a significant impact on the systemic financial crisis pressure index were selected, namely, the stock price index change rate, industrial added value growth rate, domestic and foreign real deposit interest rate differential, and foreign direct investment as a percentage of GDP. A dynamic Logit model with lagging binary variables is constructed, and compared with the traditional static Logit line, the actual dynamic fitting effect is better than the static Logit model. The dynamic Logit model is used to predict the early warning status of systemic financial crisis in 2020, and the forecast of various early warning indicators is realized by the ARIMA model. The final prediction results show that the probability of a systemic financial crisis in China in 2020 is extremely low, almost zero. This is in line with the overall improvement in the international economic situation in 2020 and the steady growth of the domestic economy.

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Section: Related Workmentioning

confidence: 99%

Financial Crisis Early Warning Based on Panel Data and Dynamic Dual Choice Model

2021

Complexity

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“…Taught by the experience of the world economic (financial) crisis of 2007-2008, almost all countries accumulated the increasing levels of FER in order to avoid the negative consequences of a sudden capital outflow, such as a fall in gross domestic product, an increase in poverty and an increase in public debt (Abdelsalam & Abdel-Latif, 2020). A high amount of foreign reserves was expected to calm the financial market from disturbances and prevent currency crises thanks to increased external liquidity in that case (Céspedes & Chang, 2020).…”

Section: Tendency Of Accumulation Of Fer In Modern (Crisis) Conditionsmentioning

confidence: 99%

Accumulation of foreign exchange reserves in the function of preventing currency crisis

Đolić,

Marković,

Stojadinović-Jovanović

2024

Econ Sust Dev

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The purpose of the paper is to explain the importance of foreign exchange reserves (FER) for the protection of the country from potential currency vulnerability. FER are controlled by the central monetary institution of the country - the central bank. We have witnessed many currency, financial and economic crises that have hit various parts of the world in the past three decades. If there is no appropriate and timely reaction of the central bank in crisis conditions or there is a bad choice of the exchange rate regime (ERR), it can lead to unforeseeable consequences for the economy and the entire society of the country. The paper will benefit monetary policy makers in order to review the optimality of FER and the sustainability of the current ERR.

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“…So, in the present study, the relationship between the rating given by the native model and the market reaction based on stock price changes is used to evaluate the proposed model. The early warning system uses different criteria in countries to determine and monitor the credit risk at shorter intervals (Abdelsalam & Abdel-Latif, 2020); as a result, due to the nature of the early warning system in determining the financial health status, this system can be used for the relative evaluation of the proposed local rating model; Although by now, a few reports have been published on the indicators of the early warning system in the Iranian banking system; however, the position of banks' ratings and the relationship between the early warning system and the rating model is not specified. Therefore, conducting this study is important and needs to be done.…”

Section: Introductionmentioning

confidence: 99%

Information Content of Rating Banks Using Early Warnings Indicators

Abbasi

Nazemi

Namazi

2021

IJFIFSA

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It is necessary for decision-makers to have a rating system in the banking industry in order to reflect the banks' status and performance. Although most institutions across the countries have rating banks and financial institutions, there is a lack of a comprehensive rating system across Iranian banks. Rating requires identifying the appropriate criteria according to the environmental and macroeconomic conditions. For this purpose, 35 components are determined through the opinion of 34 banking and academic experts using the Delphi method and rating is done by the TOPSIS method for 15 banks listed on the Tehran stock exchange over the period of 5 years from 2015 to 2019. The results show that in addition to the quantitative aspects, the qualitative aspects and aspects related to environmental and macro aspects are effective in the native model of banks ratings. Also, there is a positive and significant relationship between banks stock prices variation and the suggested ratings.

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An optimal early warning system for currency crises under model uncertainty

Cited by 5 publications

References 29 publications

Financial Crisis Early Warning Based on Panel Data and Dynamic Dual Choice Model

Financial Crisis Early Warning Based on Panel Data and Dynamic Dual Choice Model

Accumulation of foreign exchange reserves in the function of preventing currency crisis

Information Content of Rating Banks Using Early Warnings Indicators

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