Leading Indicators of Balance-of-Payments Crises: A Partial Review

Bank of England Working Paper No. 171

55 Pages Posted: 27 May 2003

See all articles by Michael K.F. Chui

Michael K.F. Chui

Bank for International Settlements (BIS)

Date Written: December 2002

Abstract

This paper reviews the theory of balance-of-payments crises, and its implications for identifying potential leading indicators of crises. It discusses and evaluates three different empirical approaches to balance-of-payments crises: The signalling, discrete-choice, and structural approaches. Despite claims of success in predicting currency crises, we note some serious theoretical and empirical qualifications which throw these claims into question. Nevertheless, we conclude that a range of indicators supported by theory may still be useful for policy-makers interested in preventing financial instability.

Keywords: Balance-of-payments crisis, leading indicators

JEL Classification: F31, F47

Suggested Citation

Chui, Michael K.F., Leading Indicators of Balance-of-Payments Crises: A Partial Review (December 2002). Bank of England Working Paper No. 171, Available at SSRN: https://ssrn.com/abstract=392302 or http://dx.doi.org/10.2139/ssrn.392302

Michael K.F. Chui (Contact Author)

Bank for International Settlements (BIS) ( email )

CH-4002 Basel, Basel-Stadt
Switzerland

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