Early Warning for Currency Crises: What Is the Role of Financial Openness?. Issue 4 (20th March 2014)

• Record Type: Journal Article
• Authors: Frost, Jon; Saiki, Ayako
• Is Part Of: Review of international economics. Volume 22:Issue 4(2014:Sep.)
• Page Start: 722
• Page End: 743
• Publication Date: 2014-03-20
• Subjects: International economic relations -- Periodicals; International finance -- Periodicals; Economic policy -- Periodicals; 330
• DOI: 10.1111/roie.12124
• Languages: English
• ISSNs: 0965-7576

Abstract

<abstract abstract-type="main"> <title>Abstract</title> <p>The paper explores whether financial openness—capital account openness and gross capital inflows—makes countries vulnerable to currency crises. A quarterly dataset on 46 advanced and emerging market economies (AEs and EMEs) during 1975Q1–2011Q4 is used, with the period after Q2 2007 used for out‐of‐sample testing. The key findings are: (1) capital account openness is associated with lower probability of currency crises, but less so for EMEs; (2) surges in gross capital flows are associated with increased risk of currency crises; and (3) the model performs well out‐of‐sample, confirming that early warning models are helpful in judging relative vulnerability.</p> </abstract>