Prediction of The Probability of Currency Crisis Within OPEC Countries

The main purpose in this article has been to estimate an Early Warning Model for OPEC countries, using the Signalling and Probability methods with annual data during 1989-2004.Using the Signalling method, growth rate of trade balance, international reserve growth rate, ratio of M2 over International reserve growth rate, ratio of Government debt to Central bank over total credit of Central Bank, Ratio of internal credits to GDP, ratio of M2 over international reserve, export growth rate, bank deposits growth rate, ratio of foreign liabilities over foreign assets, ratio of domestic credit over total bank deposits, and growth rate of domestic credit over GDP, are found to be the most crisis predictor variables within OPEC that monitoring these variables can help to recognize monetary crises. Applying the Probability method, a probability function is developed, that has predicted at least 40 percent of 76% of the crises happened. Although the Signalling and Probability methods have the necessary credibility to predict crises, but they short fall, having enough confidence level predicting crises. Thus, efforts should be made in order to develop more efficient models.