In this chapter we provide a brief review of the “signals” approach used in this book to assess the probability of a currency or a banking crisis. This methodology was first used to analyze the performance of a variety of macroeconomic and financial indicators around the “twin crises” in...

In this study, we begin by assessing the ability of sovereign credit ratings to anticipate crises. In addition, given the wave of sovereign credit ratings downgrades that have followed the crises in Asia, we investigate formally the extent to which credit ratings are reactive. Along the way, we...

In focusing on the 24 month window prior to the onset of the crisis, the criteria for ranking the indicators presented in our related work does not distinguish between a signal given 12 months prior to the crisis and one given one month prior to the crisis. In what follows we examine this issue,...

The preceding sections have predominantly focused on the antecedents of financial crises. Namely, the emphasis has been on the ability of a variety of indicators, including the credit ratings, to anticipate crises and characterize the extent to which a country is vulnerable. An application of...

Predicting the timing of currency and banking crises is likely to remain an elusive task for academics, financial market participants, and policymakers. Few foresaw the Asian crises and fewer still could have imagined their severity. However, recent events have highlighted the importance of...

This note reviews the theories as to why financial crises spill over across national boundaries. We discuss alternative frameworks ranging from bilateral trade links to more complex financial interconnections via banks and other investors. We review the evidence on which channels of contagion...

The signals approach was applied to 24 of the indicators around the dates of the 29 banking and the 87 currency crises. In what follows, we first compare our results for the 15 original indicators in Kaminsky and Reinhart (1996) to those presented in that study. This exercise assesses the...

Over the past two hundred years -- some would argue even longer -- financial events, such as the devaluation of a currency or an announcement of default, have been capable of triggering an immediate adverse chain reaction among countries within a region and in some cases across regions. The...