Prague Development Center,Prague Development Center s.r.o.
Abstract
This paper intends to assess financial vulnerability in Thailand through the construction of a financial
vulnerability indicator (FVI). This early warning system has been developed using the signals approach
proposed by Kaminsky and Reinhart (1999), followed by composite indicator construction. The period
under study spans from January 2000 through to December 2016. Our empirical findings indicate that
exports has the lowest noise-to-signal ratio (0.13), followed by real GDP (0.15) and house price index
(0.20). These suggest that financial crises are usually preceded by a weakening in exports, a slowdown in
the economy and a decline in house price. For Thailand, four major financial episodes are successfully
outlined during the study period, demonstrating the effectiveness of an early warning system in financial
vulnerability forecasting