Article thumbnail

Forecasting Financial Crises and Contagion in Asia using Dynamic Factor Analysis

By Andrea Cipollini and George Kapetanios

Abstract

In this paper we use principal components analysis to obtain vulnerability indicators able to predict financial turmoil. Probit modelling through principal components and also stochastic simulation of a Dynamic Factor model are used to produce the corresponding probability forecasts regarding the currency crisis events a®ecting a number of East Asian countries during the 1997-1998 period. The principal components model improves upon a number of competing models, in terms of out-of-sample forecasting performance.Financial Contagion, Dynamic Factor Model

OAI identifier:

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.

Suggested articles

Citations

  1. (2006). (2006a): \Early warning system for soverign debt crisis: the role of heterogeneity",
  2. (1977). A monetary model of exchange market pressure applied to the postwar Canadian experience",
  3. (2000). An assessment of vulnerability: out-of-sample results" in Assessing Financial Vulnerability: An Early Warning System for Emerging Markets,
  4. (2004). Assessing Early Warning Systems: How Have They Worked in Practice?", IMF working paper 04/052.
  5. (1999). Balance of Payments Crises: The Role of Early Warning Systems," IMF occasional paper 186.
  6. (2001). Bank Lending and Contagion: Evidence From the Asian Crisis ",
  7. (2003). Common vulnerabilities", CEPR discussion paper 3759.
  8. (2003). Comparison of Estimation Methods for Dynamic Factor Models of Large Dimensions",
  9. (1975). Comparison of the predicted and observed secondary structure of T4 phage lysozime",
  10. (1999). Contagion in emerging markets: when Wall Street is a career",
  11. (1996). Currency Crashes in Emerging Markets: an empirical treatment",
  12. (2008). Currency crises in Asia: a multivariate logit approach",
  13. (2003). Dynamic Factor analysis of ¯nancial contagion in Asia",
  14. (2000). Economic and statistical measures of forecast accuracy",
  15. (2002). Exchange market pressure, currency crises, monetary policy: additional evidence from emerging markets", IMF working paper 02/14
  16. G.L.(1999): \Currency and banking crises: the early warnings of distress", IMF working paper 99/178.
  17. (2004). Leading Indicators of Country Risk and Currency Crises \ The Asian Experience," Economic Review, Federal Reserve Bank of Atlanta,
  18. (1998). Leading indicators of currency crises",
  19. (1999). Liquidity crises in emerging markets: theory and policy", NBER working paper 7272
  20. (2002). Macroeconomic Forecasting Using Di®usion Indexes",
  21. (2006). Monitoring and Forecasting Currency crises",
  22. (2000). On Crises, Contagion, and Confusion."
  23. (2005). Opening the Black Box: structural factor model versus structural VAR models" CEPR discussion paper 4133.
  24. (1999). Predicting currency crises: the indicators approach and an alternative",
  25. (2000). Rational contagion and globalisation of securities markets",
  26. (2003). Spillovers through banking centers: a panel data analysis of bank °ows",
  27. (2001). The role of the banking system in the international transmission of shocks", Banca d'Italia Discussion Paper,
  28. (2003). Theory for Factor Models of Large Dimensions,"
  29. (2002). Towards a new early warning system of ¯nancial crises", European Central Bank working paper 145.