Economic growth and currency crisis: A real exchange rate entropic approach

Abstract

We propose a classification of currency crisis consequences based on the entropic analysis of a macroeconomic variable uniquely, without any further assumption. The entropy information carried by the real exchange rate time series serves to order the sampled countries. We show that this ranking is highly correlated with the annual minimum growth of gross domestic product, a proxy used to quantify real currency crisis effects. We compare this criterion against that most currently used, variance based methodology. In addition, cross-country correlations support the hierarchical ordering based on the entropic criterion.