Developing An Early Warning System For Currency Crises: The Case Of Jordan

Qasim M. Jdaitawi, Izz Eddien N. Ananzeh, Ahmed M. Al-Jayousi

Abstract


In this paper an early warning system for currency crisis in Jordan was developed. The system is based on two standard empirical methods of researching and forecasting a currency crisis: the signaling method and the Logit method.  Our findings showed that all leading indicators on average sent signals within 6 to 24 months ahead of the crisis. Among the leading indicators, four variables were identified as key to the warning system; they were succeeded and precisely warning system showed also a behavior and a precise description for the period preceding the currency crisis that occurred in Jordan, and these variables were the sharp decline in international reserves, the decline in the trade balance, increase the broad money supply (M2), and finally the increase in the Dinar exchange rate.


Keywords


Early warning system, Currency crises, crisis prediction, Signal approach, Logit

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References


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DOI: http://dx.doi.org/10.3968/j.mse.1913035X20140801.3914

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