Currеncy Crisеs, Chаrаctеristics, аnd Indicаtоrs

Abstract

Currency crises have been common in modern society. The paper uses a signals approach to assess the indicators and characteristics of the currency crisis. Kaminsky et al. (1998) used a signals approach in identifying currency crises Currency crises are triggered by unsustainable economic conditions. The signal approach entails checking the advancement of currency variables. When the indicators deviate from the standard levels, the situation is a warning signal for the probability of currency crises over a specified period. The efficiency of the signal approach can be scrutinized by the extent to which indicators are useful in anticipating crises. According to the signal approach, variables that are significant in predicting crises include domestic inflation, international reserves; credit to the public sector, and domestic credit. Variables such as the fiscal deficit, GDP growth, export performance, trade balance, and money growth are used in the signal approach to predict the possibility of currency crises. The paper focused on examining the indicators that tend to show uncommon performance in the phases preceding the currency crisis. If a variable surpasses a certain threshold over twenty-hour months it signals the likelihood of a currency crisis in the future.