Designing an Early Warning System for the Currency Crises in Iran Logit and Markov Switching Approaches

Document Type : Research Paper

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Abstract

The purpose of this study is to introduce a pre-crisis warning pattern in Iran during the years 1981-2016 using Logit and Markov switching approaches. This study use a combination of exchange rate changes, foreign reserves and bank profit to calculate the adjusted currency crisis index. In this regard, to investigate the factors affecting the probability of currency crisis was used to Logit approach and  to investigate the effect of early warning variables on the currency crisis the Markov switching approach was used. The results of the Logit approach indicate that the increase in the variables of the ratio of government deficit to GDP, current account deficit to GDP ratio and inflation rate had a positive effect on the probability of a currency crisis. On the other hand, an increase in GDP growth and oil prices has reduced the likelihood of a currency crisis. The results of the Markov Switching approach also show that variables of the ratio of government deficit to GDP, current account deficit to GDP ratio and inflation rate have increased the occurrence of currency crisis. Also, the increase in explanatory variables of oil price and GDP growth rate will reduce the occurrence of currency crisis.
 
 

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References

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new economy and trad
Volume 14, Issue 3
May 2020
Pages 97-124

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History

  • Receive Date: 05 May 2019
  • Revise Date: 19 August 2019
  • Accept Date: 03 September 2019

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