Language:
English
Pages:
Online-Ressource (1 online resource (22 p.))
Edition:
Online-Ausg. World Bank E-Library Archive
Parallel Title:
Herrera, Santiago User's Guide to an Early Warning System for Macroeconomic Vulnerability in Latin American Countries
Keywords:
Arts and Music
;
Banking Crises
;
Credit Growth
;
Culture & Development
;
Currency
;
Currency Crises
;
Debt Markets
;
Domestic Cred Exchange
;
Economic Conditions and Volatility
;
Economic Theory and Research
;
Educational Technology and Distance Learning
;
Exchange Rate
;
Federal Reserve
;
Federal Reserve System
;
Finance and Financial Sector Development
;
Financial Crises
;
Financial Literacy
;
Geographical Information Systems
;
Good
;
Inflation
;
Inflation Rate
;
Information Security and Privacy
;
Instrument
;
Interest
;
Interest Rates
;
Macroeconomics and Economic Growth
;
Market
;
Markets and Market Access
;
Options
;
Real Exchange Rate
;
Reserves
;
Science and Technology Development
;
Statistical and Mathematical Sciences
;
Arts and Music
;
Banking Crises
;
Credit Growth
;
Culture & Development
;
Currency
;
Currency Crises
;
Debt Markets
;
Domestic Cred Exchange
;
Economic Conditions and Volatility
;
Economic Theory and Research
;
Educational Technology and Distance Learning
;
Exchange Rate
;
Federal Reserve
;
Federal Reserve System
;
Finance and Financial Sector Development
;
Financial Crises
;
Financial Literacy
;
Geographical Information Systems
;
Good
;
Inflation
;
Inflation Rate
;
Information Security and Privacy
;
Instrument
;
Interest
;
Interest Rates
;
Macroeconomics and Economic Growth
;
Market
;
Markets and Market Access
;
Options
;
Real Exchange Rate
;
Reserves
;
Science and Technology Development
;
Statistical and Mathematical Sciences
Abstract:
Models for an early warning system do a good job predicting vulnerability to macroeconomic crises in several Latin American countries. - Herrera and Garcia develop an early warning system for macroeconomic vulnerability for several Latin American countries, drawing on the work of Kaminsky, Lizondo, and Reinhart (1997) and Kaminsky (1988). They build a composite leading indicator that signals macroeconomic vulnerability, showing that, historically, crises tend to happen in certain vulnerable situations. Interested mainly in providing an operational tool, Herrera and Garcia use a different approach to the problem than Kaminsky did. First, they use fewer variables to generate the signals. Then, after the variables are aggregated, a signal is issued, depending on the behavior of the composite index. (Kaminsky's procedure was to generate signals with each variable and then aggregate them.) Their results are satisfactory both statistically and operationally. Statistically, Type I and Type II errors are smaller than those reported in previous papers. Operationally, this system of leading indicators is less costly to maintain, given fewer variables - which are widely available and reported with timeliness. Herrera and Garcia tested the models' out-of-sample predictive ability on crises that occurred after the first stage of their project was finished: Colombia (September 1998), Brazil (January 1999), and Ecuador (February 1999). In all cases the models correctly anticipated the speculative attacks. Moreover, Mexico's models, estimated with information available two years before the 1994 crisis, show that these signaling devices would have been useful for signaling the macroeconomic vulnerability before December 1994. This paper - a product of the Economic Policy Sector Unit, Latin America and the Caribbean Region - is part of a larger effort in the region to build tools that policymakers can use to prevent crises. The authors may be contacted at cgarciacoradoworldbank.org or sherrera@worldbank.org
URL:
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