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The Integration of International Financial Markets: An Attempt to Quantify Contagion in an Input-Output-Type Analysis

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  • Dieter Schumacher

Abstract

The increasing integration of international financial markets means that credit defaults in one country have to be covered by creditors in other countries. If the principle of creditor liability were applied systematically, the financial losses incurred by the financial institution that provided the credit and is thus directly affected by the default would be “passed on” through its domestic and foreign shareholders and debt holders, as well as their creditors, to the original savers. In this paper, this contagion effect will be estimated by taking international capital linkages into account. Analogously to an input-output analysis of interindustry linkages, savings used for investments in one country are traced back to the countries from which the funds originated. This also reveals the important role of international financial centers, which essentially serve as distributors of investment risks, while the financial losses are ultimately borne by larger countries with higher levels of savings.

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  • Dieter Schumacher, 2016. "The Integration of International Financial Markets: An Attempt to Quantify Contagion in an Input-Output-Type Analysis," Discussion Papers of DIW Berlin 1554, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp1554
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    References listed on IDEAS

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    1. Blazejczak, Jürgen & Braun, Frauke G. & Edler, Dietmar & Schill, Wolf-Peter, 2014. "Economic effects of renewable energy expansion: A model-based analysis for Germany," Renewable and Sustainable Energy Reviews, Elsevier, vol. 40(C), pages 1070-1080.
    2. Gourinchas, Pierre-Olivier & Rey, Hélène & Truempler, Kai, 2012. "The financial crisis and the geography of wealth transfers," Journal of International Economics, Elsevier, vol. 88(2), pages 266-283.
    3. Upper, Christian & Worms, Andreas, 2004. "Estimating bilateral exposures in the German interbank market: Is there a danger of contagion?," European Economic Review, Elsevier, vol. 48(4), pages 827-849, August.
    4. Mr. Gian M Milesi-Ferretti & Ms. Natalia T. Tamirisa & Mr. Francesco Strobbe, 2010. "Bilateral Financial Linkages and Global Imbalances: a View on The Eve of the Financial Crisis," IMF Working Papers 2010/257, International Monetary Fund.
    5. David Greenaway & Douglas R. Nelson (ed.), 2001. "Globalization and Labour Markets," Books, Edward Elgar Publishing, volume 0, number 1803.
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    Cited by:

    1. Satoru Hagino & Jiyoung Kim, 2021. "Compilation and analysis of international from-whom-to-whom financial stock table for Japan, Korea, the United States, and China," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 10(1), pages 1-27, December.

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    More about this item

    Keywords

    financial crises; international capital linkages; input-output analysis;
    All these keywords.

    JEL classification:

    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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