Leading Indicators for Eurozone Crisis_Based on KLR Signal Approach
Date Issued
2013
Date
2013
Author(s)
Tsai, Yi-Chang
Abstract
Despite the fact that whole the Euro area has been suffering from recession since 2009, the timing and severity of the recent financial crisis surprised most observers. There is an extensive literature on early warning systems, which claim to be apt for a systematical prediction of financial crises. One of the most prominent “early warning system” approaches was first developed by Kaminsky, Lizondo, and Reinhart (KLR) [Leading Indicators of Currency Crises, International Monetary Fund Staff Papers No. 45, 1998, pp. 1–48]. This paper analyzes whether the KLR approach could have predicted the Eurozone financial crisis at an earlier point in time. Using a broad set of indicators, it is shown that the forecasting quality of this approach is fairly good in the case of Eurozone area.
Subjects
Financial Crisis
Currency Crisis
Early Warning System
Type
thesis