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Emerging Markets Finance and TradeVolume 52, Issue 7, 2 July 2016, Pages 1542-1561

The Role of Bank and Corporate Balance Sheets on Early Warning Systems of Currency Crises—An Empirical Study(Article)

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  • aThe World Bank, Washington, DC, United States
  • bInternational Monetary Fund, Washington, DC, United States
  • cFaculdade de Economia, Universidade do Porto, Porto, Portugal
  • dCEF.UP – Center for Economics and Finance at University of Porto, Faculdade de Economia, Universidade do Porto, Porto, Portugal

Abstract

This study analyzes the role of bank and corporate balance sheets on early warning systems (EWS) of currency crises. Using firm-level data on debt structure, leverage, liquidity, and profitability, this study presents estimations of EWS for a panel of emerging markets. Using calibration experiments, we assess the performance of alternative EWS specifications in a comprehensive range of crisis-probability cut-offs‏. These models supplement EWS based on traditional macroeconomic indicators, improving forecasting performance substantially. The results support the third-generation models of currency crises and can assist policymakers on the design of surveillance strategies tailored for heterogeneous levels of risk tolerance and country specificities. © Taylor & Francis Group, LLC.

Author keywords

balance sheet effectscurrency crisesearly warning systemsemerging marketsexternal vulnerability

Funding details

Funding sponsor Funding number Acronym
Fundação para a Ciência e a Tecnologia
See opportunities by FCT		PEst-C/EGE/UI4105/2011,PEst-OE/EGE/UI4105/2014FCT
Conselho Nacional de Desenvolvimento Científico e TecnológicoCNPq
European Regional Development FundERDF
Programa Operacional Temático Factores de CompetitividadePOFC

  • 1

    Roberto Perrelli would like to thank for the support of Conselho Nacional de Desenvolvimento Científico e Tecnológico (CNPq), Brazil. Manuel Duarte Rocha acknowledges financial support, through CEF.UP (Center for Economics and Finance at the University of Porto), from the European Regional Development Fund through COMPETE (Programa Operacional Factores de Competitividade) and Portuguese Public Funds through FCT (Fundação para a Ciência e a Tecnologia) in the framework of the project PEst-C/EGE/UI4105/2011 and PEst-OE/EGE/UI4105/2014.

  • ISSN: 1540496X
  • Source Type: Journal
  • Original language: English
  • DOI: 10.1080/1540496X.2016.1158545
  • Document Type: Article
  • Publisher: Routledge

  Rocha, M.D.; Faculdade de Economia, Universidade do Porto, Rua Dr. Roberto Frias, Porto, Portugal;
© Copyright 2016 Elsevier B.V., All rights reserved.

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(2021) Symmetry
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