Turbulence In Foreign Exchange Research Articles

Early‐warning analysis for currency crises in emerging markets: A revisit with fuzzy clustering

AbstractCurrency crises, also often called balance‐of‐payment crises, occur when massive capital outflows force a country to devalue or float its currency. The world‐wide integration of capital markets since the 1980s and 1990s has increased the degree of capital mobility, which also determined a substantial turbulence in foreign exchange markets and frequent currency crises. In this paper, we explore advanced supporting instruments for predicting currency crises, based on an empirical study of the currency crisis episodes in 23 emerging markets around the world during the second half of last century. More specifically, we investigate the usefulness of prediction models built based on the fuzzy c‐means method. First we build clustering models that partition data into a certain number of overlapping natural groups. Thereafter, we classify the data clusters into early‐warning clusters and tranquil clusters. We compare the performance of our models with a conventional c‐means clustering model and a benchmark probit model. The results show that the proposed models achieve a similar level of out‐of‐sample performance as the probit model and c‐means model. The fuzzy approach also introduces additional explanatory advantages into the early‐warning analysis process. Copyright © 2010 John Wiley & Sons, Ltd.

Currency Crises in Transition Economies: Some Further Evidence

:This paper seeks to explain the causes of turbulence in foreign exchange markets in selected transition economies (Albania, Belarus, Bulgaria, Croatia,Macedonia, Moldova, Romania and Ukraine) over the period 1995-2006. It uses a set of categorical regression (CATREG) models. It considers the influence of macroeconomic, social development, institutional and external variables, based on first, second or third generation previously released theoretical models, bringing a new innovative and wider approach to the field. It finds that the insights developed by second and third generation models complement rather than substitute for the explanation provided by first generation models in the case of transition economies.

Currency crises in transition economies: An empirical analysis

This paper examines the causes of turbulence in foreign exchange markets by looking closely at the experience of four transition economies (Bulgaria, Romania, Russia, Ukraine). It considers the influence of macroeconomic variables in currency crises occurrence through the use of logit models. In an environment of deteriorating fundamentals the examined issue is whether or not some fundamentals are able to maximise the likelihood of currency crisis incidence.

Currency Crises in Transition Economies; Some Recent Evidence

This paper studies the causes of turbulence in foreign exchange markets looking closely on the experience of five transition economies. In more details, we consider the influence of macroeconomic variables in the case of currency crises occurrence by using logit models. In an environment of deteriorating fundamentals, the examined issue is whether some fundamentals maximize the likelihood of currency crisis occurrence.

Exchange Market Mayhem: The Antecedents and Aftermath of Speculative Attacks

Exchange market mayhem The antecedents and aftermath of speculative attacks This paper evaluates the causes and consequences of episodes of turbulence in foreign exchange markets. Using data from 1959 through 1993 for twenty OECD countries, we consider the antecedents and aftermath of devaluations and revaluations, flotations, fixings and speculative attacks (which may not be successful). We find that realignments of fixed exchange rates are alike: devaluations are preceded by political instability, budget and current account deficits, and fast growth of money and prices. Revaluations are mirror images of devaluations. Speculative attacks resemble devaluations, but money growth and inflation are more endemic and there is no last-minute attempt to tighten monetary policy. In contrast, few consistent correlations link regime transitions like flotations or fixings to macroeconomic or political variables. Transitions between exchange rate regimes are largely idiosyncratic, and are neither consistently provoked ex ante by systematic imbalances, nor typically justified ex post by subsequent changes in policy. We conclude that there are no clear early warning signals of many speculative attacks, and no easy solutions for policy-makers. — Barry Eichengreen, Andrew K. Rose and Charles Wyplosz

Economic Prospects and Policy Recommendations

Economic conditions continue to improve, with growth at a satisfactory rate and inflation subdued, whether one considers the UK in particular or the world economy in aggregate. This cheerful prospect may be threatened however by financial developments, with some turbulence in foreign exchange markets and uncertainty about the future of monetary policy. In the UK this uncertainty is particularly acute following the surprise decision not to raise short-term interest rates in May.