Three methods of forecasting currency crises: Which made the run in signaling the South African currency crisis of June 2006?

Arbeitspapier

In this paper we test the ability of three of the most popular methods to forecast the South African currency crisis of June 2006. In particular we are interested in the out-ofsample performance of these methods. Thus, we choose the latest crisis to conduct an out-of-sample experiment. In sum, the signals approach was not able to forecast the outof- sample crisis of correctly; the probit approach was able to predict the crisis but just with models, that were based on raw data. Employing a Markov-regime-switching approach also allows to predict the out-of-sample crisis. The answer to the question of which method made the run in forecasting the June 2006 currency crisis is: the Markovswitching approach, since it called most of the pre-crisis periods correctly. However, the "victory" is not straightforward. In-sample, the probit models perform remarkably well and it is also able to detect, at least to some extent, out-of-sample currency crises before their occurrence. It can, therefore, not be recommended to focus on one approach only when evaluating the risk for currency crises.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IWH Discussion Papers ; No. 17/2007

Classification and Topics

• Classification: Wirtschaft ; Semiparametric and Nonparametric Methods: General ; Single Equation Models; Single Variables: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes ; Forecasting Models; Simulation Methods ; Money and Interest Rates: Forecasting and Simulation: Models and Applications ; Foreign Exchange ; International Finance Forecasting and Simulation: Models and Applications
• Subject: currency crisis ; forecast ; predictability ; signals approach ; Probit approach ; Markov regime switching approach ; South Africa ; Währungskrise ; Prognoseverfahren ; Vergleich ; Südafrika

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Knedlik, Tobias ; Scheufele, Rolf
• Event: Veröffentlichung
• (who): Leibniz-Institut für Wirtschaftsforschung Halle (IWH)
• (where): Halle (Saale)
• (when): 2007

Further information

• Handle: http://hdl.handle.net/10419/29989
• URN: urn:nbn:de:gbv:3:2-6311
• Last update: 10.03.2025, 11:43 AM CET