Beckmann, Daniela
[Sonstige Person, Familie und Körperschaft];
Menkhoff, Lukas
[Sonstige Person, Familie und Körperschaft];
Sawischlewski, Katja
[Sonstige Person, Familie und Körperschaft]
Robust lessons about practical early warning systems
Beschreibung:
Early warning systems (EWSs) are subject to restrictions that apply to exchange rates in general: fundamentals matter but their influence is small and unstable. Despite this limitation four major lessons emerge: First, EWSs have robust forecasting power and thus help policy-makers to prevent crises. Second, policy-makers must decide about some EWSs' elements, such as the sensitivity of the forecasts. Third, EWSs' performance is increased by taking a logit model, shorter samples and a regional approach. Fourth, the finding of contagion may motivate policy to shield its economy against inefficient international financial markets.