The Study Of The Generation And Prevention Of The Twin Crises

Since the 90s of the 20th century, some countries, especially developing countries, occurred financial crises characterized by the currency crisis and banking crisis existing at the same time in a period of time, and this crisis is called twin crisis. Early warning and prevention of twin crisis become an important subject facing developing countries.This paper,firstly, defines the concept of banking crisis, currency crisis, twin crisis, then summarize the banking crisis theory, currency crisis theory, and twin crisis theory .Secondly, it summarizes the causes and impact of the twin crisis by analyzing the instance of the twin crisis.Thirdly, it calculates the probability of the twin crisis by empirical analysis of prevention of the twin crisis.Lastly, From the practical situation in China,it analyzes potential risk factors which can result in twin crisis occurred in China,and propose policy recommendations to prevent twin crisis occurring in China.This paper calculates the probability of the twin crisis by empirical analysis with models of Logit and Probit.It selects some countries which occurred twin crisis in 1997 as samples,and forecasts within the samples.Then,it selects some countries which occurred twin crisis in 2008,and tests the effective of the result from outside samples. Results show that: the model was well fitted, high accuracy measurement. The empirical results show that: With economy growing too fast, a national should prevent the formation of the bubble economy; the excessive expansion of domestic credit will breed in bubble economy; banking crisis tend to be as a simultaneous or warning indicator for the occurrence of currency crisis.;Structure of foreign debt must be reasonable and foreign exchange reserves must be moderate.