Effectiveness of Early Warning Models: A Critical Review and New Agenda for Future Direction

Padhan, Rakesh; Prabheesh, K.P.

doi:10.21098/bemp.v22i4.1188

Cited by 22 publications

(11 citation statements)

References 75 publications

(118 reference statements)

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“…4. However, Padhan and Prabheesh (2019) in their review study argue that huge volatility and prolonged uncertainty can lead to excessive exchange rate pressure.…”

Section: Notesmentioning

confidence: 99%

The nexus between the exchange rates and interest rates: evidence from BRIICS economies during the COVID-19 pandemic

Garg

Prabheesh

2021

SEF

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Purpose This paper aims to investigate whether the interest rate differentials Granger cause expected change in the exchange rate during the COVID-19 period. The study examines if the investors in the international assets and exchange rate markets take advantages of the relevant information obtained during the COVID-19 pandemic. Design/methodology/approach This paper used daily data ranging from January 31, 2020 to June 30, 2020 and considered BRIICS economies. The study implemented the Toda–Yamamoto’s Granger causality approach to identify the causality between interest rate differentials and exchange rates. For robustness checks, the study used ARLD short-run dynamics to infer causal relations. Findings Overall, the results indicate that the interest rate differentials improve the predictability of subsequent exchange rate changes in all six BRIICS economies during the COVID-19 period wherein investors are forward-looking. The empirical results pass the robustness checks. Originality/value There is a lack of studies exploring the relationship between interest rate differentials and exchange rates in the presence of an unanticipated event such as the current pandemic. To the best of the authors’ knowledge, this is the first study to explore the causal linkages between interest rate differentials and expected change in exchange rates, focusing on the COVID-19 outbreak period.

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“…4. However, Padhan and Prabheesh (2019) in their review study argue that huge volatility and prolonged uncertainty can lead to excessive exchange rate pressure.…”

Section: Notesmentioning

confidence: 99%

The nexus between the exchange rates and interest rates: evidence from BRIICS economies during the COVID-19 pandemic

Garg

Prabheesh

2021

SEF

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“…At present, the definition of financial crisis early warning generally agreed by domestic and foreign scholars is as follows: "Financial crisis early warning refers to the construction and analysis of financial early warning indicator system around economic cyclical fluctuations through the application of certain statistical measurement methods. e purpose is to predict the possibility of a financial crisis in a certain country or region within a certain period of time before the occurrence of a financial crisis and to provide decision-makers with a basis for monitoring and preventing financial crises, so as to avoid the destructive effect of the financial crisis on the country or region's economic development" [2].…”

Section: Introductionmentioning

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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“…Countries Year Since the GFC, two forms of globalization, trade and financial integration raised concerns among economic actors because of the possibility of contagion (Padhan & Prabheesh, 2019). The dynamics of the US economy and its increasing impact on the global and regional economy indicated the level of integration in the global economies and financial markets.…”

Section: Type Of Crisismentioning

confidence: 99%

“…Such a condition causes the distribution of funds to be less optimal, reducing economic activity (Mishkin, 2001), which in turn creates a sudden freeze on the interbank market, banking crisis, credit collapse, and severe recession ( Boissay, Collard, & Smets, 2016). A crisis is difficult to predict because of its complex nature, and thus requires additional narration, especially regarding the triggering factors (Padhan & Prabheesh, 2019).…”

Section: Introductionmentioning

confidence: 99%

Early Warning Indicators and Optimal Policies for Mitigating Economic Crises: Evidence From Meta-Analysis

Abubakar¹,

Utari²,

Azwar³

2020

BEMP

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This study examines the early warning indicators of crises and the optimal policies for mitigating economic crises. Based on meta-analysis of 72 studies, we find that the exchange rate is the most used indicator in detecting crises, and the optimal policies for mitigating crises are monetary and fiscal policies. We further find that besides the exchange rate, the interest rate is a dominant indicator of crises in developed countries.Moreover, the foreign exchange, international reserves and current account are the dominant indicators in developing countries. The evidence for developing countries aligns with the finding that policies addressing external sector performance are preferable to mitigate crises in these countries.

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Effectiveness of Early Warning Models: A Critical Review and New Agenda for Future Direction

Cited by 22 publications

References 75 publications

The nexus between the exchange rates and interest rates: evidence from BRIICS economies during the COVID-19 pandemic

The nexus between the exchange rates and interest rates: evidence from BRIICS economies during the COVID-19 pandemic

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

Early Warning Indicators and Optimal Policies for Mitigating Economic Crises: Evidence From Meta-Analysis

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