Were Turkey's 1994 and 2001 twin crises predictable?: the signal approach
Date
2013
Authors
Mihyaz, Timur, author
Kling, Robert, advisor
Jianakoplos, Nancy, committee member
Vasudevan, Ramaa, committee member
Davies, Stephen P., committee member
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Abstract
This study presents a signal approach for predicting the occurrence of currency and banking crisis by using Kaminsky and Reinhart's (1999) Signal Model. The paper focuses on testing this theory by examining the twin crises that occurred in Turkey in 1994 and 2001. In the first step, leading indicators for twin crisis are chosen and then these indicators are used to calculate composite indicators. The out-of-sample performance will also be introduced for the period of 2007-2009. The estimation period is from Jan-1987 to Feb-2001. The real exchange rate (deviation from trend), Export/Import ratio, Excess M1 Balances, Bank Reserves/Bank Asset ratio, and oil prices are the top five indicators that are useful for predicting such crises. Short Term Debt/Reserves, Import, Reserves, and real interest rate are the other important variables that performed well for anticipating these crises.
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Subject
financial crises
hot money
leading indicators
probability of crises
signal approach
Turkey