No. 538: Forecasting Financial Crises and Contagion in Asia Using Dynamic Factor Analysis
May 1, 2005
In this paper we compare the performance of a regional indicator of vulnerability in predicting, out of sample, the crisis events affecting the South East Asian region during the 1997-98 period. A Dynamic Factor method was used to retrieve the vulnerability indicator and stochastic simulation is used to produce probability forecasts. The empirical findings suggest evidence of financial contagion.
J.E.L classification codes: C32, C51, F34
Keywords:Financial contagion, Dynamic factor model