DETERMINANTS OF CURRENCY CRISIS IN JORDAN A MULTINOMIAL LOGIT MODEL

Abstract

In this paper, an early warning system will be developed to explain any potential currency crisis and identify a number of leading indicators that can help the understanding of the crises, using Jordanian data. The methodology of this paper includes utilizing the Multinomial Logit analysis. The paper has found evidence that number of key indicators including real exchange rate (RER), money supply-reserves ratio (M2R), growth rate of domestic credit (ΔDC) and Central Bank foreign assets to liabilities ratio (AL), play significant roles in explain the currency crises. While their marginal effect varies, they are consistent with theory in terms of signs.