Informational Contagion of Sudden Stops in a Global Games Framework
AbstractThis paper highlights the cross-country spread of self-fulfilling financial crises through an informational channel. It sets up a two-country framework of investment with strategic complementarities and incomplete information about economic fundamentals. Each market may be subject to sudden stops, triggered by agents preemptively withdrawing their investments for fear others do so. After observing a massive capital outflow from one country, agents downgrade common fundamentals, and therefore have higher requirements regarding factors specific to the other country. This in turn may induce a crisis in the latter, which is not justified by idiosyncratic events or economic interdependence.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Springer in its journal Open Economies Review.
Volume (Year): 15 (2004)
Issue (Month): 2 (04)
Contact details of provider:
Web page: http://www.springerlink.com/link.asp?id=100323
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Victor Vaugirard, 2004. "Bank runs, political distortions and contagion," Economics Bulletin, AccessEcon, vol. 6(18), pages 1-10.
- Tai-kuang Ho & Ming-yen Wu, 2012. "Third-person Effect and Financial Contagion in the Context of a Global Game," Open Economies Review, Springer, vol. 23(5), pages 823-846, November.
- Moheeput, Ashwin, 2008. "Financial Fragility, Systemic Risks and Informational Spillovers : Modelling Banking Contagion as State-Contingent Change in Cross-Bank Correlation," The Warwick Economics Research Paper Series (TWERPS) 853, University of Warwick, Department of Economics.
- Manz, Michael, 2010. "Information-based contagion and the implications for financial fragility," European Economic Review, Elsevier, vol. 54(7), pages 900-910, October.
- Victor Vaugirard, 2005. "Crony Capitalism and Sovereign Default," Open Economies Review, Springer, vol. 16(1), pages 77-99, January.
- repec:ebl:ecbull:v:6:y:2004:i:18:p:1-10 is not listed on IDEAS
- Vaugirard, Victor, 2007. "Informational contagion of bank runs in a third-generation crisis model," Journal of International Money and Finance, Elsevier, vol. 26(3), pages 403-429, April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F. Baum).
If references are entirely missing, you can add them using this form.