an integrated ews for predicting currency vulnerabilities in cee countries emanuel florin irimin

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An integrated EWS for predicting currency vulnerabilities in CEE countries Emanuel Florin Irimin

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An integrated EWS for predicting currency vulnerabilities in CEE countries Emanuel Florin Irimin. RON/EUR evolution. Objective. to construct a flexible short term warning system capable of identifying vulnerabilities that may trigger exchange market pressure on local currencies - PowerPoint PPT Presentation

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Page 1: An integrated EWS for predicting currency vulnerabilities in CEE countries Emanuel Florin  Irimin

An integrated EWS for predicting currency

vulnerabilities in CEE countries

Emanuel Florin Irimin

Page 2: An integrated EWS for predicting currency vulnerabilities in CEE countries Emanuel Florin  Irimin

RON/EUR evolution

Page 3: An integrated EWS for predicting currency vulnerabilities in CEE countries Emanuel Florin  Irimin

Objective

• to construct a flexible short term warning system capable of identifying vulnerabilities that may trigger exchange market pressure on local currencies

• to analyze the events of the past months from the perspective of the major pressure Eastern Europe’s currencies were confronted with

Page 4: An integrated EWS for predicting currency vulnerabilities in CEE countries Emanuel Florin  Irimin

Currency crises literature

Currency Crisis Literature

Models of Currency Crisis

Contagion Effects

Early Warning Systems

Page 5: An integrated EWS for predicting currency vulnerabilities in CEE countries Emanuel Florin  Irimin

Formula EMP:

Currency crises definition

rr

ee

EMPti

ti

rti

ti

eti

1,

,

1,

,

,

11

otherwise

EMPifCrisis EMP

,0

2.,1

Page 6: An integrated EWS for predicting currency vulnerabilities in CEE countries Emanuel Florin  Irimin

Exchange rate regimes

Page 7: An integrated EWS for predicting currency vulnerabilities in CEE countries Emanuel Florin  Irimin

Crisis

Page 8: An integrated EWS for predicting currency vulnerabilities in CEE countries Emanuel Florin  Irimin

The models

KLR

LOGIT

ANN

Page 9: An integrated EWS for predicting currency vulnerabilities in CEE countries Emanuel Florin  Irimin

Data used

Page 10: An integrated EWS for predicting currency vulnerabilities in CEE countries Emanuel Florin  Irimin

Data used

Page 11: An integrated EWS for predicting currency vulnerabilities in CEE countries Emanuel Florin  Irimin

Indicators` effectiveness matrix

Crisis

(within 3 months)

No crisis

(within 3 months)

Signal was issued

A B

No signal was issued

C D

Page 12: An integrated EWS for predicting currency vulnerabilities in CEE countries Emanuel Florin  Irimin

KLR Results – in sample

Page 13: An integrated EWS for predicting currency vulnerabilities in CEE countries Emanuel Florin  Irimin

KLR Results – out of sample

Page 14: An integrated EWS for predicting currency vulnerabilities in CEE countries Emanuel Florin  Irimin

Logit results

SIMPLE CRISIS

/CUMULATIVE

CRISIS

TRESHOLD/

PERCENTILE

RAW DATAINPUT

/BYNARY

INPUT

Page 15: An integrated EWS for predicting currency vulnerabilities in CEE countries Emanuel Florin  Irimin

Out-of sample results for raw data

Page 16: An integrated EWS for predicting currency vulnerabilities in CEE countries Emanuel Florin  Irimin

Out-of sample results for binary data

Page 17: An integrated EWS for predicting currency vulnerabilities in CEE countries Emanuel Florin  Irimin

The Logit model

Page 18: An integrated EWS for predicting currency vulnerabilities in CEE countries Emanuel Florin  Irimin

ANN architecture

Hidden layers

Output

Page 19: An integrated EWS for predicting currency vulnerabilities in CEE countries Emanuel Florin  Irimin

ANN architecture

Page 20: An integrated EWS for predicting currency vulnerabilities in CEE countries Emanuel Florin  Irimin

ANN out of sample performance

Page 21: An integrated EWS for predicting currency vulnerabilities in CEE countries Emanuel Florin  Irimin

Comparative performance

Crisis within a three months period

Crisis within a month

Page 22: An integrated EWS for predicting currency vulnerabilities in CEE countries Emanuel Florin  Irimin

The complex EWS