Abstract
Currency crises, generally defined as rapid depreciations of a local currency or loss of foreign exchange reserves, are common incidents in modern monetary systems. Due to their repeated occurrence and severity, they have earned wide coverage by both theoretical and empirical literature. However, unlike advanced and emerging economies, currency crises in low-income countries have not received due attention. This paper uses the signals approach developed by Kaminsky et al. (1998) and assesses currency crisis in Ethiopia over the time frame January 1970 to December 2008. Using the Exchange Market Pressure Index (EMPI), we identify three currency crisis episodes that coincide with the liberalization following the fall of Ethiopian socialism, the Ethio-Eritrean border conflict, and the zenith of the global financial crisis. The timing shows the importance of both local and international dynamics. More macroeconomic indicators picked up the first crisis in a 24-month signalling window, compared to the latter two. Three categories of indicators were used: current account, capital account and domestic financial sector. None of the capital account indicators were significant based on the noise-to-signal ratio rule. One possible explanation for this might be the weak integration of the Ethiopian economy with global capital markets.
Original language | English |
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Pages (from-to) | 315-330 |
Number of pages | 16 |
Journal | African Development Review |
Volume | 27 |
Issue number | 3 |
DOIs | |
Publication status | Published - 17 Sept 2015 |
Keywords
- Currency crisis
- financial crisis
- early warning systems
- signals approach
- Ethiopia
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Dive into the research topics of 'Assessing Indicators of Currency Crisis in Ethiopia: Signals Approach'. Together they form a unique fingerprint.Student theses
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Government Finances and financial shocks in developing economies
Author: Megersa, K., 14 Jun 2017Supervisor: Houssa, R. (Supervisor), Cassimon, D. (External person) (Supervisor), Baland, J. (President), Reding, P. (Jury), Nkurunziza, J. (External person) (Jury), Annaert, J. (External person) (Jury) & Erreygers, G. (External person) (Jury)
Student thesis: Doc types › Doctor of Economics and Business Management
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