Contagion in Latin America: Definitions, Measurement, and Policy Implications
AbstractThis paper analyzes bond and stock markets in Latin America and uses these patterns to investigate whether contagion occurred in the 1990's. It defines shift-contagion' as a significant increase in cross-market linkages after a shock to one country or region. Several coin-toss examples and a simple model show that the standard tests for contagion are biased due to the presence of heteroscedasticity, endogeneity, and omitted-variable bias. Recent empirical work which addresses these problems finds little evidence of shift-contagion during a range of crisis periods. Instead, this work argues that many countries are highly interdependent' in all states of the world and the strong cross-country linkages which exist after a crisis are not significantly different than those during more stable periods. These findings have a number of implications for Latin America.
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Bibliographic InfoArticle provided by LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION in its journal Journal of LACEA Economia.
Volume (Year): (2001)
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Other versions of this item:
- Kristin Forbes & Roberto Rigobon, 2000. "Contagion in Latin America: Definitions, Measurement, and Policy Implications," NBER Working Papers 7885, National Bureau of Economic Research, Inc.
- F30 - International Economics - - International Finance - - - General
- F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
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