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Macroeconomic Currency Crisis Early Warning Indicators in Emerging Countries

Received: 21 March 2024     Accepted: 8 April 2024     Published: 10 May 2024
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Abstract

This study investigates the relationships between exchange rate and the main macroeconomic variables as GDP, inflation and unemployment on one hand and the ability of these variables in alerting about coming exchange rate crisis in emerging countries. The three variables have significant coefficients with exchange rate in line with literature signs except unemployment rate. The study uses signal approach, dealing specifically with the main macroeconomic variables, selected by system GMM method in emerging markets. The study develops macroeconomic pressure indices from these selected macroeconomic variables using the market pressure index methodology from Early Warning System literature. Based on the macroeconomic variables, a combined macroeconomic pressure index has been built. The results of the non-parametric early warning system indicate that the individual macroeconomic pressure indexes created are good warning tools of a currency crisis. The macroeconomic pressure indexes are better early warning indicators than market pressure index built from international reserves, in emerging countries for four quarters warning period window. Production pressure index appears more accurate followed by inflation but unemployment pressure index is the most sensitive. However, the number of effective indicators and the accuracy of the indexes are not the same for all the countries, changing from a country to another.

Published in Journal of Business and Economic Development (Volume 9, Issue 2)
DOI 10.11648/j.jbed.20240902.11
Page(s) 21-34
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Exchange Rate, Crisis, Macroeconomics, Warning System

References
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Cite This Article
  • APA Style

    Coulibaly, S., Marouane, A. (2024). Macroeconomic Currency Crisis Early Warning Indicators in Emerging Countries. Journal of Business and Economic Development, 9(2), 21-34. https://doi.org/10.11648/j.jbed.20240902.11

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    ACS Style

    Coulibaly, S.; Marouane, A. Macroeconomic Currency Crisis Early Warning Indicators in Emerging Countries. J. Bus. Econ. Dev. 2024, 9(2), 21-34. doi: 10.11648/j.jbed.20240902.11

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    AMA Style

    Coulibaly S, Marouane A. Macroeconomic Currency Crisis Early Warning Indicators in Emerging Countries. J Bus Econ Dev. 2024;9(2):21-34. doi: 10.11648/j.jbed.20240902.11

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  • @article{10.11648/j.jbed.20240902.11,
      author = {Siriki Coulibaly and Aya Marouane},
      title = {Macroeconomic Currency Crisis Early Warning Indicators in Emerging Countries
    },
      journal = {Journal of Business and Economic Development},
      volume = {9},
      number = {2},
      pages = {21-34},
      doi = {10.11648/j.jbed.20240902.11},
      url = {https://doi.org/10.11648/j.jbed.20240902.11},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jbed.20240902.11},
      abstract = {This study investigates the relationships between exchange rate and the main macroeconomic variables as GDP, inflation and unemployment on one hand and the ability of these variables in alerting about coming exchange rate crisis in emerging countries. The three variables have significant coefficients with exchange rate in line with literature signs except unemployment rate. The study uses signal approach, dealing specifically with the main macroeconomic variables, selected by system GMM method in emerging markets. The study develops macroeconomic pressure indices from these selected macroeconomic variables using the market pressure index methodology from Early Warning System literature. Based on the macroeconomic variables, a combined macroeconomic pressure index has been built. The results of the non-parametric early warning system indicate that the individual macroeconomic pressure indexes created are good warning tools of a currency crisis. The macroeconomic pressure indexes are better early warning indicators than market pressure index built from international reserves, in emerging countries for four quarters warning period window. Production pressure index appears more accurate followed by inflation but unemployment pressure index is the most sensitive. However, the number of effective indicators and the accuracy of the indexes are not the same for all the countries, changing from a country to another.
    },
     year = {2024}
    }
    

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  • TY  - JOUR
    T1  - Macroeconomic Currency Crisis Early Warning Indicators in Emerging Countries
    
    AU  - Siriki Coulibaly
    AU  - Aya Marouane
    Y1  - 2024/05/10
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    N1  - https://doi.org/10.11648/j.jbed.20240902.11
    DO  - 10.11648/j.jbed.20240902.11
    T2  - Journal of Business and Economic Development
    JF  - Journal of Business and Economic Development
    JO  - Journal of Business and Economic Development
    SP  - 21
    EP  - 34
    PB  - Science Publishing Group
    SN  - 2637-3874
    UR  - https://doi.org/10.11648/j.jbed.20240902.11
    AB  - This study investigates the relationships between exchange rate and the main macroeconomic variables as GDP, inflation and unemployment on one hand and the ability of these variables in alerting about coming exchange rate crisis in emerging countries. The three variables have significant coefficients with exchange rate in line with literature signs except unemployment rate. The study uses signal approach, dealing specifically with the main macroeconomic variables, selected by system GMM method in emerging markets. The study develops macroeconomic pressure indices from these selected macroeconomic variables using the market pressure index methodology from Early Warning System literature. Based on the macroeconomic variables, a combined macroeconomic pressure index has been built. The results of the non-parametric early warning system indicate that the individual macroeconomic pressure indexes created are good warning tools of a currency crisis. The macroeconomic pressure indexes are better early warning indicators than market pressure index built from international reserves, in emerging countries for four quarters warning period window. Production pressure index appears more accurate followed by inflation but unemployment pressure index is the most sensitive. However, the number of effective indicators and the accuracy of the indexes are not the same for all the countries, changing from a country to another.
    
    VL  - 9
    IS  - 2
    ER  - 

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Author Information
  • DEECAF (Economic Destination Africa), Rennes, France; Department of Economics, University Péléforo Gon Coulibaly, Korhogo, Ivory Coast; Research and Development (R&D), Quantylix, Tunis, Tunisia

  • Research and Development (R&D), Quantylix, Tunis, Tunisia

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