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- Title
FORECASTING CURRENCY CRISES: WHICH METHODS SIGNALED THE SOUTH AFRICAN CRISIS OF JUNE 2006?
- Authors
Knedlik, Tobias; Scheufele, Rolf
- Abstract
In this paper we test the ability of three of the most popular methods to forecast South African currency crises with a special emphasis on their out-of-sample performance. We choose the latest crisis of June 2006 to conduct an out-of-sample experiment. The results show that the signals approach was not able to forecast the out-of-sample crisis correctly; the probit approach was able to predict the crisis but only with models, that were based on raw data. The Markov-regime-switching approach predicts the out-of-sample crisis well. However, the results are not straightforward. In-sample, the probit models performed remarkably well and were also able to detect, at least to some extent, out-of-sample currency crises before their occurrence. The recommendation is to not restrict the forecasting to only one approach.
- Subjects
SOUTH Africa; CURRENCY crises; FINANCIAL performance; PROBITS; MARKOV processes; DEVALUATION of currency; ECONOMIC forecasting; CURRENCY transactions; ECONOMICS
- Publication
South African Journal of Economics, 2008, Vol 76, Issue 3, p367
- ISSN
0038-2280
- Publication type
Article
- DOI
10.1111/j.1813-6982.2008.00206.x