The predictability and the relatıonshıp between currency crisis and interest rates

ABSTRACTThe predictability of the crises with the early warning indicators, which turn the macroeconomic indicators of all countries upside down, has been popular in recent years. Thus, the precautions taken by the economies and the policy determinations will take form accordingly. At this stage, the presentation of the potential crises with the help of leading indicators is highly important in terms of economies.The purpose of this thesis is to analyze the relation between the financial crisis and the interest rates and the predictability of this situation in advance. Whether or not the interest rates are the leading indicators has been examined in this study. Based on the indicators of a month between the 1989:01-2011:02 period, Quadratic -Trend Analysis, Hodrick-Prescott Filter and Binary Logit model have been used accordingly. In the research in which 27 explanatory variables have been used, 352 logit equations have been solved and as a result it has been concluded that the interest rate alteration is a prevailing early warning indicator by having an impact on many factors in the outbreak of financial crises.Key words: Currency Crisis, Interest Rates, Early Warning Systems