No. 538: Forecasting Financial Crises and Contagion in Asia Using Dynamic Factor Analysis
Andrea Cipollini Queen Mary, University of London George Kapetanios Queen Mary, University of London
May 1, 2005
Abstract
In this paper we compare the performance of a regional indicator of vulnerability in predicting, out of sample, the crisis events affecting the South East Asian region during the 1997-98 period. A Dynamic Factor method was used to retrieve the vulnerability indicator and stochastic simulation is used to produce probability forecasts. The empirical findings suggest evidence of financial contagion.
J.E.L classification codes: C32, C51, F34
Keywords: Financial contagion, Dynamic factor model