This Paper proposes a new measure of contagion that is good at anticipating future vulnerabilities. Building on previous work, it uses correlations of equity markets across countries to measure contagion, but in a departure from previous practice, measures contagion using the relationship of these correlations with distance. Also in contrast to previous work, our test is good at identifying periods of ‘positive contagion,’ in which capital flows to emerging markets in a herd-like manner largely unrelated to fundamentals. Identifying such periods of ‘fatal attraction’ is important as they provide the essential ingredients for subsequent crises and rapid outflows of capital.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
3870.
Find related papers by JEL classification: F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements F34 - International Economics - - International Finance - - - International Lending and Debt Problems O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Barry Eichengreen & Andrew K. Rose & Charles Wyplosz, 1996.
"Contagious Currency Crises,"
NBER Working Papers
5681, National Bureau of Economic Research, Inc.
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Graciela L. Kaminsky & Carmen M. Reinhart, 2001.
"Bank Lending and Contagion: Evidence from the Asian Crisis,"
NBER Chapters,
in: Regional and Global Capital Flows: Macroeconomics Causes and Consequences, NBER-EASE Volume 10, pages 73-116
National Bureau of Economic Research, Inc.
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