This paper explores the issue of constructing an economic predictive model of financial vulnerability through an alternative econometric methodology that addresses drawbacks in existing approaches. The methodology entails estimating a Markov regime switching model of exchange rate movements,...

A Markov regime switching model for exchange rate fluctuations, with time-varying transition probabilities, is used in constructing a monthly model for predicting currency crises in Southeast Asia. The approach is designed to avoid the estimation inconsistency that might arise from...