A currency crisis and its perception with fuzzy C-means

Authors:
Ibrahim Ozkan;I. B. Türkşen;Naci Canpolat
Affiliations:
Department of Mechanical and Industrial Engineering, University of Toronto, Toronto, Canada M5S 3G8 and Department of Economics, Hacettepe University, Beytepe, Ankara, Turkey;Department of Mechanical and Industrial Engineering, University of Toronto, Toronto, Canada M5S 3G8 and Department of Industrial Engineering, TOBB-Economics and Technology University, Ankara, Turk ...;Department of Economics, Hacettepe University, Beytepe, Ankara, Turkey
Venue:
Information Sciences: an International Journal
Year:
2008

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Abstract

In this paper, we attempt to analyze currency crises within the decision theory framework. In this regard, we employ fuzzy system modeling with fuzzy C-means (FCM) clustering to develop perception based decision matrix. We try to build a prescriptive model in order to determine the best approximate reasoning schemas. We use the underlying behavior of the market participants during the crisis. With this analysis, we form the dictionary catalogs to construct a perception based payoff matrix. As an illustrative example, we used data from Turkish economy that covers two currency crises. The results show that market participants' dictionary catalogs based on perception knowledge extracted from the first crisis help participants to perceive the rise in market uncertainty. When the expectations are revised accordingly a speculative attack becomes inevitable.