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Contagion, Spillover, and Interdependence

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  • Roberto Rigobón

Abstract

This paper reviews the empirical literature on international spillovers and contagion. Theoretical models of spillover and contagion imply that the reduced-form observable variables suffer from two possible sources of bias: endogeneity and omitted variables. These econometric problems, in combination with the heteroskedasticity that plagues the data, produce time-varying biases. Several empirical methodologies are evaluated from this perspective: nonparametric techniques, such as correlations and principal components; and parametric methods, such as OLS, VAR, event studies, ARCH, and nonlinear regressions. The paper concludes that there is no single technique that can solve the full-fledged problem and discusses three methodologies that can partially address some of the questions in the literature.

Suggested Citation

  • Roberto Rigobón, 2019. "Contagion, Spillover, and Interdependence," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Spring 20), pages 69-99, April.
    • Handle: RePEc:col:000425:017277
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    1. Caporin, Massimiliano & Pelizzon, Loriana & Ravazzolo, Francesco & Rigobon, Roberto, 2018. "Measuring sovereign contagion in Europe," Journal of Financial Stability, Elsevier, vol. 34(C), pages 150-181.
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    More about this item

    Keywords

    Identification; heteroskedasticity; contagion;
    All these keywords.

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General

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