Predicting Financial Crisis in Developing Economies: Astronomy or Astrology?

In the aftermath of the European currency crisis of 1992-3, the Mexican financial crisis of 1994-5 and the Asian financial crisis of 1997-8, neoclassical economists in the academy and policy community have been engaged in a project to develop predictors or indicators of currency, banking and generalized financial crises in developing economies. This paper critically examines the efforts of the economics profession in this regard on both empirical and theoretical grounds. The paper argues that these predictors perform poorly on empirical grounds--indeed, the predictors developed after each of these crises failed to predict the next major crisis. These predictors are also rejected on theoretical grounds. From a post-Keynesian perspective, there is no reason to expect that the mere provision of information will prevent crises by changing agents' behaviors. The paper will also propose several indicators that are consonant with post-Keynesian economic theory, although it will be argued that these indicators do not represent a sufficient means to prevent financial crisis. Ironically, as agents develop confidence in the predictive capacity of crisis indicators, they may engage in actions that increase the economy's vulnerability to crisis. Far more important to the project of preventing financial crisis in developing economies is the implementation of constraints on those investor behaviors that render liberalized, internationally integrated financial systems inherently prone to instability and crisis. Hence, intellectual capital would be more productively expended on devising appropriate changes in the overall regime in which investors operate (such as measures that compel changes in financing strategies) rather than in searching for new predictors of crisis.Financial Crisis

The Case for an Intermediate Exchange Rate Regime with Endogenizing Market Structures and Capital Mobility

Set in the context of the recent theoretical and policy debates on appropriate exchange rate regimes for emerging market economies in a world of free capital mobility, the paper attempts to present the case for an intermediate exchange rate regime, drawing on recent theoretical and empirical literatures on behavioural finance and currency market structures; and to examine empirically the experiences and evolution of Brazil.s foreign exchange market under different exchange rate regimes.exchange rate management, emerging markets, Brazil

Smart Grid Security: Threats, Challenges, and Solutions

The cyber-physical nature of the smart grid has rendered it vulnerable to a multitude of attacks that can occur at its communication, networking, and physical entry points. Such cyber-physical attacks can have detrimental effects on the operation of the grid as exemplified by the recent attack which caused a blackout of the Ukranian power grid. Thus, to properly secure the smart grid, it is of utmost importance to: a) understand its underlying vulnerabilities and associated threats, b) quantify their effects, and c) devise appropriate security solutions. In this paper, the key threats targeting the smart grid are first exposed while assessing their effects on the operation and stability of the grid. Then, the challenges involved in understanding these attacks and devising defense strategies against them are identified. Potential solution approaches that can help mitigate these threats are then discussed. Last, a number of mathematical tools that can help in analyzing and implementing security solutions are introduced. As such, this paper will provide the first comprehensive overview on smart grid security

Cyber Switching Attacks on Smart Grids

As we live in smart grid revolution, the conventional power systems turn into a fast pace toward smart grids, this transition creates new and significant challenges on the electrical network security level; In addition to the important features of the smart grids, cyber security transpire to be a serious issue due to connecting all the loads, generation units, renewable resources, substations and switches via communication network. Cyber-physical attacks are classified as the major threatening of smart grids security, this attacks may lead to a many severe repercussions in the smart grid such as large blackout and destruction of infrastructures. Switching attack is one of the most serious cyber-physical attacks on smart grids because it is direct, fast, and effective in destabilizing the grids. We start the thesis by introducing a state-of-the-art on cyber attacks from the power layer point of view i.e. the cyber attacks that affect the smart grid stability and what are the power system based solutions have been done so far to prevent or reduce the cyber attacks severity .As we focus on cyber switching attack and the method of preventing it, firstly a study on the attack principles and effects is introduced, we construct the attack on a single machine connected to an infinite bus through a transmission line. The attack on the target generator implemented by modeling the system using swing equation on Matlab platform, then we verified the result by implementing the same attack on Simulink Platform. Finally we present a novel solution to mitigate such type of attacks by using Thyristor-Controlled Braking Resistor (TCBR).The suggested solution is able to recapture the machine stability directly after the attack