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Early Warning for Currency Crises: What Is the Role of Financial Openness?
Author(s) -
Frost Jon,
Saiki Ayako
Publication year - 2014
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12124
Subject(s) - openness to experience , currency , economics , monetary economics , vulnerability (computing) , sample (material) , capital (architecture) , emerging markets , capital account , macroeconomics , geography , psychology , social psychology , chemistry , computer security , archaeology , chromatography , computer science
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.