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| In this paper we test the ability of three of the most popular methods to forecast the South African currency crisis of June 2006. In particular we are interested in the out-ofsample performance of these methods. Thus we choose the latest crisis to conduct an out-of-sample experiment. In sum the signals approach was not able to forecast the outof- sample crisis of correctly; the probit approach was able to predict the crisis but just with models that were based on raw data. Employing a Markov-regime-switching approach also allows to predict the out-of-sample crisis. The answer to the question of which method made the run in forecasting the June 2006 currency crisis is: the Markovswitching approach since it called most of the pre-crisis periods correctly. However the victoryʺ is not straightforward. In-sample the probit models perform remarkably well and it is also able to detect at least to some extent out-of-sample currency crises before their occurrence. It can therefore not be recommended to focus on one approach only when evaluating the risk for currency crises. -- currency crisis ; forecast ; predictability ; signals approach ; Probit approach ; Markov regime switching approach ; South Africa |
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