Early detection model of financial crisis in Indonesia based on real exchange rate indicator

Abstract

The financial crisis is often the cases in many countries led experts are interested to know the cause and the general pattern. Based on the cause and the pattern, it is expected to develop a model to detect the crisis. The financial crisis in Indonesia can be seen from the macro-economic indicators. This study used indicators of real exchange rate to detect the crisis in Indonesia. The financial crisis occurs when the indicator has high filtered probability and followed by a change in structure. The aim of this study is to develop a model that can explain the crises that have occurred in Indonesia. The results showed that SWARCH (2,1) and SWARCH (3,1) models with an average of conditional ARMA(1,0) could catch a signal crisis in Indonesia on 1998. SWARCH (2,1) model explained that on periods of July 2015 until June 2016 there would be no financial crisis. Meanwhile SWARCH (3,1) model could explain that on periods of July 2015 until June 2016 there would be prone to financial crisis.