Previous early-warning systems (EWSs) for currency crises have relied on models that require a priori dating of crises. This paper proposes an alternative EWS, based on a Markov-switching model, which identifies and characterizes crisis periods endogenously; this also allows the model to utilize...

This paper combines artificial neural networks (ANN), fuzzy optimization and time-series econometric models in one unified framework to form a hybrid intelligent early warning system (EWS) for predicting economic crises. Using quarterly data on 12 macroeconomic and financial variables for the...

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...

Early warning systems (EWSs) are subject to restrictions that apply to exchange rates in general: fundamentals matter but their influence is small and unstable. Despite this limitation four major lessons emerge: First, EWSs have robust forecasting power and thus help policy-makers to prevent...

The last decade has witnessed the development of a vast literature devoted to the study of several phenomena like banking crises or episodes of vulnerability and distress, characterized by inadequate capitalization, impairment of the asset quality and of the credit institutions' rating. The...

The paper will examine the 1994 and 2001 Turkish currency crises by using early warning system which is based on the “signal” approach proposed by Kaminsky, Lizondo and Reinhart (KLR) (1998). The “signal” approach is a non-parametric approach. In this approach, the behavior of a number...

Currency crises creates extremely high costs in economies. The depletion of foreign exchange reserves, a severe recession and negative GDPgrowth rates are observe in the countries where the currency crises are occurred. There seems to be great benefits from identifying reliable early warning...

We propose a measure of the probability of crises associated with an aggregate indicator, where the percentage of false alarms and the proportion of missed signals can be combined to give an appreciation of the vulnerability of an economy. In this perspective, the important issue is not only to...

After the onset of the East Asian financial crisis, the interest in early warning system has been revived. While there are different causes to which crises can be attributed, early warning system can be utilized to predict its emergence via monitoring of key economic variables. Thus,...

Methods for online turning point detection in business cycles are discussed. The statistical properties of three likelihood-based methods are compared. One is based on a Hidden Markov Model, another includes a non-parametric estimation procedure and the third combines features of the other two....