ABSTRACT
The many financial crises that erupted in the course of the 1990s have ignited great interest in the development of early-warning models for financial crises. At the same time, advances in economic theory suggest that the development of reliable early warning systems for financial crises is likely to meet with considerable difficulties. While empirical studies for broad samples of emerging markets are relatively abundant, rather few investigations have been made for geographically constrained samples. This is particularly true for the Central and Eastern European transition countries, where the scarcity of available data imposes additional limitations on empirical research. On the other hand, the ongoing processes of liberalization of capital flows and convergence toward the present EU member states is likely to pose considerable challenges for the macroeconomic stability of these countries. As a result, tools for the detection of vulnerabilities in these countries could make an important contribution to stable macroeconomic development in the region and the smooth integration of candidate countries into the European Union and – finally – into the euro area.
