Leading indicators of balance-of-payments crises: a partial review

Working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 20 December 2002

Working Paper no. 171
Michael Chui

This paper reviews the theory of balance-of-payments crises, and its implications for identifying potential leading indicators of crises. It discusses and evaluates three different empirical approaches to balance-of-payments crises: the signalling, discrete-choice, and structural approaches. Despite claims of success in predicting currency crises, we note some serious theoretical and empirical qualifications which throw these claims into question. Nevertheless, we conclude that a range of indicators supported by theory may still be useful for policy-makers interested in preventing financial instability. 

PDFLeading indicators of balance-of-payments crises: a partial review

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