EARLY WARNING MODELS FOR DEBT CRISES - CASE STUDY FOR ROMANIA, CZECH REPUBLIC AND HUNGARY

This paper aims to achieve those early warning indicators of debt crises in Romania, Czech Republic and Hungary in the period 1999, 4th quarter up to 2013, 4th quarter. Starting from three type of indicators: external indicators related to capital account, external indicators related to current account and domestic indicators, we have computed a database of potential leading indicators containing twelve indicators fir Roniania, as follows: Real effective exchange rate from trend, Relative change of exports, Relative change of imports, Terms of trade, Current account balance as % of GDP, The relative change of foreign reserves, Capital account balance as % of GDP, Net external debt as % of GDP, Government debt as % of GDP, Unemployment rate, Industrial production growth, Net International investment position as % of GDP. This research aim to observe which of the potential leading indicators used in the analysis are significant in explaining the incidence of currency instability periods and give us a warning regardless any negative trends in the macroeconomic or financial activity, affecting the national or the global situation. Using econometrics techniques, we have determined those indicators which are econometrically significantly in explaining the appearance of debt crises. Weighting their role in explaining currency crisis, we have composed the early warning index of debt crises. The evaluation results suggest that there is a range of leading indicators which gave us a warning signal regarding any instability periods of debt crises which occur in the economy.