Autocorrelation-Corrected Standard Errors in Panel Probits: An Application to Currency Crisis Prediction
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Summary:
Many estimates of early-warning-system (EWS) models of currency crisis have reported incorrect standard errors because of serial correlation in the context of panel probit regressions. This paper documents the magnitude of the problem, proposes and tests a solution, and applies it to previously published EWS estimates. We find that (1) the uncorrected probit estimates substantially underestimate the true standard errors, by up to a factor of four; (2) a heteroskedasicity- and autocorrelation-corrected (HAC) procedure produces accurate estimates; and (3) most variables from the original models remain significant, though substantially less so than had been previously thought.
Series:
Working Paper No. 2004/039
Subject:
Currency crises Early warning systems Econometric analysis Estimation techniques Export performance Financial crises Foreign exchange International trade Real exchange rates
English
Publication Date:
March 1, 2004
ISBN/ISSN:
9781451845860/1018-5941
Stock No:
WPIEA0392004
Pages:
21
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