EARLY WARNING INDICATORS OF CURRENCY CRISES AND BANKING CRISES IN VIETNAM

Abstract

Based on a prudential viewpoint, this study applies the combination of four methods, including Signal, Logit/Probit, BMA (Bayesian Model Averaging), and 2SLS (Two Stage Least Squares) to develop early warning indicators of currency crises and banking crises in Viet Nam. The findings show the empirical evidence of the important role of macroeconomic variables in the early warning, especially 8 indicators, including stock price index, real effective exchange rate, exports, M2/reserves, bank deposits, reserves, M2 multiplier and the impact of the global financial crisis have the meaningful significance in the early warning for currency crises and banking crises in Viet Nam. This study supports to empirical literature that the impact of dollarization on the probability of currency crises, and the impact of the global financial crisis of 2008 on the probability of currency crises and banking crises in small emerging economies and open such as Vietnam.