Early Warning for Currency Crises: What Is the Role of Financial Openness?
Year: 2014
Type: article
Abstract: The paper explores whether financial openness—capital account openness and gross capital inflows—makes countries vulnerable to currency crises. A quarterly dataset on 46 advanced and emerging market economies (AEs and EMEs) during 1975Q1–2011Q4 is used, with the period after Q2 2007 used for out‐of‐sample testing. The key findings are: (1) capital account openness is associated with lower probability of currency crises, but less so for EMEs; (2) surges in gross capital flows are associated with increased risk of currency crises; and (3) the model performs well out‐of‐sample, confirming that early warning models are helpful in judging relative vulnerability.
DOI: 10.1111/roie.12124
Authors: Jon Frost, Ayako Saiki
Institution: De Nederlandsche Bank
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
Funders: Banco de España, De Nederlandsche Bank
OpenAlex ID: W3122872015