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Methodology for an Early Warning System: The Signals Approach

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  • Reinhart, Carmen
  • Goldstein, Morris
  • Kaminsky, Graciela

Abstract

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 Kaminsky and Reinhart (1996) and is described in greater detail in Kaminsky, Lizondo, and Reinhart (1998). In the analysis that follows we focus on a sample of 25 countries over the period 1970 to 1995. The out-of-sample performance of the “signals” approach will be assessed using data for the January 1996-June 1997 period.

Suggested Citation

  • Reinhart, Carmen & Goldstein, Morris & Kaminsky, Graciela, 2000. "Methodology for an Early Warning System: The Signals Approach," MPRA Paper 24576, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:24576
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    More about this item

    Keywords

    early warning system; crises; banking; currency; financial indicators;
    All these keywords.

    JEL classification:

    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F3 - International Economics - - International Finance
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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