Selection And Demonstration Of The Early Warning Model Of Currency Crisis

Currency crises have occurred more frequently and have been more destructive since the Bretton Woods collapsed in the early 1970's. Especially, the Asian Crisis in1997 and 1998 had a strong impact on the world's economy. This has stimulated a number of researches on currency crises. People's Bank of China will make Renmibi freely exchangeable in the recent future. All these points above will increase financial risks in China's economy and require the financial theory to explain and predict the currency crises. The purpose of this paper is to design an effective early warning system based on the new-developed currency crisis theory and suited to the particular situation in China.The beginning part of the paper introduces the most important development of the currency crisis theory, including the evolution of the crisis theories from the first generation to the second generation and the different models of the second generation. This part also introduces briefly the five models for predicting currency crises. From the theory to the effect, the paper analyzes these limitations of these models.We collect mass data for comparative study. Using the data, we analyze the different risk circumstances in different countries and compare them with China. The analysis covers international trade, economic output, capital flow, financial market, and other related itemsThe paper then constructs a new early warning system, using logistic regression model. And the datum of those who had occurred the currency crisis and those who not, we can validate the precision of the model. Then we analyze the reason of this result.The last part of this paper is the application in China of this model. From the result, we analyze the reason of why the currency crisis has not taken palace in China. So we...