Ukraine: Development of the Early Warning Indicators of Economic Crises for Ukraine

Description:

Macroeconomic turmoils like currency, financial, and balance-of-payment crises largely affect the well-being of a population.  In young democracies, it can also triggers public unrests. Any crisis, in turn, is a result of structural problems at macro and micro levels, e.g., imbalances and distortions in fundamental market institutions or governmental policies, inefficiencies, and weaknesses of market mechanisms.  When a particular distortion persists over a significant period of time, thus creating counterproductive incentives and/or increasing overall risks in the economy, the emergence of a crisis becomes likely.  

Although no one can predict whether an impeding crisis will materialize and over what time horizon, analysts can quite successfully analyze and explain circumstances around strong pre-crisis signs.   It is therefore critical that a government be able to understand and monitor institutional and policy distortions leading to crises and develop prompt and adequate policy response. The ability to do so helps to prevent the emergence of a crisis or to alleviate its severity. 

Achieving such a preventive and alleviating function requires permanent monitoring of a set of macroeconomic and structural indicators that point to problems well in advance and that come with corresponding solutions.  These macroeconomic and structural indicators are usually called "leading" indicators.  The methodology used to assess them constitutes the Early Warning System for macroeconomic crises (EWS).  Developing the leading indicators of an Early Warning System for Ukraine is at the idea at the core of this project.

Sponsor:

Polish Ministry of Foreign Affairs

The project is co-financed by the 2008 Polish aid programme of the Ministry of Foreign Affairs of the Republic of Poland.