We identify a set of “rules of thumb” that characterise economic, financial and structural conditions preceding the onset of banking and currency crises in 36 advanced economies over 1970–2010. We use the Classification and Regression Tree methodology (CART) and its Random Forest (RF)...

Identification of structural VARs using sign restrictions has become increasingly popular in the academic literature. This paper (i) argues that identification of shocks can benefit from introducing a global dimension, and (ii) shows that summarising information by the median of the available...

We propose a novel approach that combines random forests and the wavelet transform to model the prediction of currency crises. Our classification model of random forests, built using both standard predictors and wavelet predictors, and obtained from the wavelet transform, achieves a demonstrably...

Most of the existing literature has used single reserve adequacy measures to evaluate the volume of excess reserves. In this paper, we employ empirical methods to generate a comprehensive reserve adequacy measure, incorporating the various objectives of holding reserves, and compare the actual...

Standard models of international risk sharing with complete asset markets predict a positive association between relative consumption growth and real exchange-rate depreciations across countries. The striking lack of evidence for this link - the consumption/real exchange-rate anomaly or...

Recent research has shown that relaxing the assumptions of complete informationand common knowledge in exchange rate models can shed light on a wide range ofimportant exchange rate puzzles. In this chapter, we review a number of models wehave developed in previous work that relax the strong...

Over the past 15 years there has been remarkable progress in the specification and estimation of dynamic stochastic general equilibrium (DSGE) models. Central banks in developed and emerging market economies have become increasingly interested in their usefulness for policy analysis and...

Common approaches to test for the economic value of directional forecasts are based on the classical Chi-square test for independence, Fisher’s exact test or the Pesaran and Timmerman (1992) test for market timing. These tests are asymptotically valid for serially independent observations....

Standard models of international risk sharing with complete asset markets predict a positive association between relative consumption growth and real exchange-rate depreciations across countries. The striking lack of evidence for this link — the consumption/real exchange-rate anomaly or...

The high costs of crises underscore the need to strengthen the resilience of economies, notably by assessing early on potential vulnerabilities that can lead to such costly events. This paper first discusses the source and nature of potential vulnerabilities in OECD countries that can lead to...