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An optimal early warning system for currency crises under model uncertainty

Mamdouh Abdelmoula M. Abdelsalam, Hany Mohamed

Central Bank Review, Volume: 20, Issue: 3, Pages: 99 - 107

Swansea University Author: Hany Mohamed

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DOI (Published version): 10.1016/j.cbrev.2020.03.002

Abstract

This paper assesses several early warning (EWS) models of financial crises to propose a model that can predict the incidence of a currency crisis in developing countries. For this purpose, we employ the equal weighting (EW) and dynamic model averaging (DMA) approaches to combine forecast from indivi...

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Published in: Central Bank Review
ISSN: 1303-0701
Published: Elsevier BV 2020
Online Access: Check full text

URI: https://cronfa.swan.ac.uk/Record/cronfa53817
Abstract: This paper assesses several early warning (EWS) models of financial crises to propose a model that can predict the incidence of a currency crisis in developing countries. For this purpose, we employ the equal weighting (EW) and dynamic model averaging (DMA) approaches to combine forecast from individual models allowing for time-varying weights. Taking Egypt as a case study and focusing only on currency crises, our findings show that combined forecast (EW- and DMA-based EWS) to account for uncertainty perform better than other competing models in both in-sample and out-of-sample forecasts.
Keywords: Financial Crises, Currency Crises, Early Warning, Uncertainty, Egypt
College: Faculty of Humanities and Social Sciences
Issue: 3
Start Page: 99
End Page: 107

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