Open AccessPredicting Financial Vulnerability in Malaysia: Evidence From the Signals Approach
Author(s) -
Tai-Hock Kuek,
ChinHong Puah,
Mohammad Affendy Arip
Publication year - 2019
Publication title -
research in world economy
Language(s) - English
Resource type - Journals
eISSN - 1923-399X
pISSN - 1923-3981
DOI - 10.5430/rwe.v10n3p89
Subject(s) - vulnerability (computing) , financial crisis , construct (python library) , predictive power , economics , stock (firearms) , empirical evidence , econometrics , macroeconomics , computer science , geography , philosophy , computer security , archaeology , epistemology , programming language
This paper aims to investigate Malaysia’s vulnerability to a financial crisis. The methodology employed is an extension of the signals approach based on the original work of Kaminsky and Reinhart (1999). By studying the period from 2000M1 to 2016M9, we construct a financial vulnerability indicator (FVI) to measure the development of vulnerabilities in the Malaysian financial system. Our empirical findings unveil that the causes of crises are multidimensional. Notably, economic slowdown, decline in stock price and weak exports contain good predictive power in assessing financial vulnerability to a crisis. This study highlights the significance of internal and external macroeconomic conditions in determining a country’s vulnerability.