Measuring the effectiveness of signals approach in an early warning system for crises and its impact on textile industry: a case study for South-East Asia

Abstract

Following the work of Kaminsky, Lizondo, and Reinhart (1997), Signals Extraction Approach has been adopted with some extensions for South-East Asian (SEA) region to investigate the performance of the technique as an Early Warning System (EWS) during Asian Financial Crisis (AFC) and Global Financial Crisis (GFC). This approach is very original in the context of investigating the impact on the dynamics of the textile industry in South-East Asia. Two additional approaches namely Signal to Noise Balance (STNB) and Kuipers Score (KS) have also been utilised. Outcome suggested that variables performed well both during AFC and GFC. However, predictive ability of variables was less during GFC compared to the AFC indicating that there may exist some complex phenomenon which requires composite statistical methods.