An Analysis of Early Warning Signals of Currency Crises in Turkey, 1986-2004

Abstract

Within a signals approach framework à la Kaminsky, Lizondo and Reinhart, this paper aims both to detect the early warning signals of currency crises in Turkey and to discuss the reliability of an early warning system for this country. To determine major leading indicators of currency crises in Turkey, more than 45 variables are tested, and by using the most relevant 15 variables, a composite index is constructed to estimate the probabilities of currency crises in the country.Currency crises, signals approach, early warning system, real exchange rate misalignment, foreign trade, Turkish economy