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Robust Lessons about Practical Early Warning Systems

Author

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  • Beckmann, Daniela
  • Menkhoff, Lukas
  • Sawischlewski, Katja

Abstract

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 crises. Second, policy-makers must decide about some EWSs elements, such as the sensitivity of the forecasts. Third, EWSs performance is increased by taking a logit model, shorter samples and a regional approach. Fourth, the finding of contagion may motivate policy to shield its economy against inefficient international financial markets.

Suggested Citation

  • Beckmann, Daniela & Menkhoff, Lukas & Sawischlewski, Katja, 2005. "Robust Lessons about Practical Early Warning Systems," Hannover Economic Papers (HEP) dp-322, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    • Handle: RePEc:han:dpaper:dp-322
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    More about this item

    Keywords

    early warning system; currency crises; emerging markets;
    All these keywords.

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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