Signaling currency crises in South Africa - South African Reserve Bank
Signaling currency crises in South Africa - South African Reserve Bank
Signaling currency crises in South Africa - South African Reserve Bank
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SARB Conference 2006Figure 9: Composite <strong>in</strong>dex of <strong>currency</strong> crisis signalsComposite <strong>in</strong>dex60504030201001994/011994/071995/011995/071996/011996/071997/011997/071998/011998/071999/011999/072000/012000/072001/012001/072002/012002/072003/012003/072004/012004/072005/012005/072006/01Source: Own calculationsWhile the <strong>in</strong>dex itself can be used to observe changes <strong>in</strong> the <strong>in</strong>tensity of <strong>currency</strong> crisis signals,the level of the <strong>in</strong>dex cannot be <strong>in</strong>terpreted. Thus, it is not possible to draw <strong>in</strong>ferences on theprobability of <strong>currency</strong> <strong>crises</strong> from the <strong>in</strong>dex. Therefore, follow<strong>in</strong>g Brüggemann and L<strong>in</strong>ne (2002)and Edison (2000) conditional probabilities for <strong>currency</strong> <strong>crises</strong> are calculated:P( <strong>crises</strong> CI ≤ CI < CI ) =t, t+18 l t u∑# months for CI ≤ CI < CI and crisis follows∑l t u# months for CI ≤ CI < CIl t u(8)For each <strong>in</strong>terval between a lower and an upper limit (<strong>in</strong> our case <strong>in</strong>tervals of 10) the conditionalprobability is calculated. This conditional probability is the probability of a crisis occurr<strong>in</strong>g with<strong>in</strong>24 months under the condition that the <strong>in</strong>dicator ranges between the lower and the upper band.The conditional probabilities are reported <strong>in</strong> Table 2.Table 2: Conditional probabilities of <strong>currency</strong> <strong>crises</strong> <strong>in</strong> <strong>South</strong> <strong>Africa</strong>Interval 0-10 10-20 20-30 30-40 40-50 UnconditionalProbability 0,17 0,52 0,60 0,83 1 0,57Source: Own calculationsFor example, the probability of a <strong>currency</strong> crisis is 0,83 if the <strong>in</strong>dex shows a value of between 30and 40, which is well above the general probability of a <strong>currency</strong> crisis to occur follow<strong>in</strong>g anymonth of the sample (0,57). Figure 10 shows a graph where the probabilities are attributed tothe respective months.Figure 10: Conditional probabilities of <strong>currency</strong> <strong>crises</strong> <strong>in</strong> <strong>South</strong> <strong>Africa</strong>Conditional probabilities10.80.60.40.201994/011994/071995/011995/071996/011996/071997/011997/071998/011998/071999/011999/072000/012000/072001/012001/072002/012002/072003/012003/072004/012004/072005/012005/072006/01Source: Own calculations. Note: Dotted l<strong>in</strong>e shows unconditional probability212Knedlik
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