An Empirical Investigation Of The Early Warning System Of Financial Crisis In China: A Comparative Study Based On Parametric And Nonparametric Approaches

With the development of the financial liberation and economic globalization, there are many financial crises that have occurred around the world. These crises have caused huge hazard to the economy and the society. It is urgent for the governments and international institutions to develop early warning systems(EWS) to monitor a plenty of indictors behavior.In this paper the two kinds popular EWS models have been conducted empirical test with China.Korea, Thailand, Malaysia, Indonesia and the Philippine countries'data. The test results suggest that, among the indicators in the nonparametric KLR model,the indicators of broad money to foreign exchange reserve's ratio, domestic credits to nominal GDP's ratio, growth rate of industrial output, real domestic interest rate, effective rate of foreign exchange, growth rate of import, growth rate of stock price and growth rate of qusia money are effective in warning financial crisis. It also just suggests that the indicators of balance of payment (capital and financial account,current account), the indicators from real economy and public sector, the indicators from financial sector have changed distinctly. But the indicators from global economy did not change markedly before financial crisis.When the empirical test conducted with Logit model,the result shows that effective exchange rate, real domestic interest rate, growth rate of foreign reserve, American interest rate, the rate of current account balance to GDP and domestic inflation rate appear statistical significance. This means the indicators from balance of payment, indicators from financial sector and indicators from global economy are effective in warning crisis. So an financial crises'outbreak is the result of internal unbalance and external unbalance in a country and the false money policy.The results of the stress test suggest that the indicators of broad money to foreign exchange reserve's ratio, growth rate of foreign exchange reserve, the growth rate of American GDP and American financial market interest rate show very import in warning financial crises in China.