Early warning systems for currency crises with real-time data

This paper investigates the performance of early warning systems for currency crises in real-time, using forecasts of indicators that are available at the moment predictions are to be made. We investigate two types of commonly used early warning systems for currency crises: the signal approach and the logit model. We apply each EWS to a panel of fifteen emerging economies, distinguishing an estimation period 1991Q1–2010Q4 and a prediction period 2011Q1–2017Q4. We find that using indicator forecasts in the predictions worsens the ability of early warning systems to signal crises compared to the most recently available information.