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Banking Sector Strenght and the Transmission of Currency Crises

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  • Allard Bruinshoofd
  • Bertrand Candelon
  • Katharina Raabe

Abstract

We show that, complementary to trade and financial linkages, the strength of the banking sector helps explain the transmission of currency crises. Specifically, we demonstrate that the Mexican, Thai, and Russian crises predominantly spread to countries with weaknesses in their banking sectors. At the same time, the role of banking sector strength varies per crisis; where the Mexican crisis spread to countries with a strong presence of foreign banks in domestic credit provision, the Thai crisis disproportionately contaminated countries where the banking sector was most sensitive to currency realignments, while the Russian crisis spread to countries with inefficiencies in the banking sector.

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Bibliographic Info

Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 032.

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Date of creation: Apr 2005
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Handle: RePEc:dnb:dnbwpp:032

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Keywords: Banking Sector Strength; Currency Crisis; Transmission Channels.;

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  1. Van Rijckeghem, Caroline & Weder, Beatrice, 2001. "Sources of contagion: is it finance or trade?," Journal of International Economics, Elsevier, vol. 54(2), pages 293-308, August.
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