The efficiency of early warning indicators for financial crises

The banking and currency crises of the last two decades inflictedsubstantial financial, economic, and social damage on thecountries in which they originated. In this work, the efficiencyof early warning indicators for these disastrous economic eventsis evaluated. An analysis of the traditional and recent literatureon currency crises is performed in order to extract potentialearly warning indicators that are suggested by theory. Alongsideothers, these candidate indicators are tested in alternativeempirical studies that are reviewed in this work. The results aremixed, but somewhat encouraging for further research in thisfield. Furthermore, the analysis is extended to a critique ofsystems of early warning indicators currently used byinternational institutions.