Evaluating the Effectiveness of Early Warning Indicators: An Application of Receiver Operating Characteristic Curve Approach to Panel Data
Journal: Scientific Annals of Economics and Business
Year: 2022

Early warning indicators (EWIs) of banking crises should ideally be judged on how well they function in relation to the choice issue faced by macroprudential policymakers. However, the effectiveness of EWIs depends upon the strength of the predicting power, stability, and timeliness of the signal. Using a balanced panel of 6 countries’ experience with banking and currency crises in recent times, this paper evaluates the effectiveness of EWIs using Receiver Operating Characteristics. Following th