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Discriminating Contagion

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  • Pavan Ahluwalia
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    Abstract

    This paper shows that a country’s vulnerability to contagious crises depends on the visible similarities between that country and other countries that are experiencing crises. A country is vulnerable to shifts in investor sentiment if it exhibits weaknesses in the same economic variables as other countries affected by a contagious crisis (particularly the country that started the contagious wave), or if it is located in the same region. The paper uses a sample of 19 emerging markets, and data from the Mexican, Asian, and Russian crises to provide evidence of this discriminating contagion, after controlling for alternative channels of contagion such as trade spillovers and financial linkages.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 00/14.

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    Length: 38
    Date of creation: 01 Dec 1999
    Date of revision:
    Handle: RePEc:imf:imfwpa:00/14

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    Related research

    Keywords: Emerging markets; Exchange rates; Economic models; contagion; exchange rate; currency crises; currency crisis; real exchange rate; crisis episode; crisis index; real effective exchange rate; effective exchange rate; currency markets; nominal exchange rate; financial crisis; bank runs; financial contagion; competitiveness; asian financial crisis; speculative attacks; exchange rate regime; real exchange rate appreciation; exchange rate appreciation; foreign exchange; crisis countries; real exchange rates; crisis episodes; exchange rate depreciation; financial crises; real exchange rate overvaluation; exchange rate peg; banking crises; exchange rate change; deposit insurance; recession; crisis prevention; asian crisis; exchange rate overvaluation; exchange rate changes;

    References

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    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.:
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    1. Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany.
    2. Glick, Reuven & Rose, Andrew K., 1999. "Contagion and trade: Why are currency crises regional?," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 603-617, August.
    3. Berg, Andrew & Pattillo, Catherine, 1999. "Predicting currency crises:: The indicators approach and an alternative," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 561-586, August.
    4. Reinhart, Carmen & Kaminsky, Graciela, 1998. "On crises, contagion, and confusion," MPRA Paper 13709, University Library of Munich, Germany.
    5. Graciela Laura Kaminsky, 1997. "Leading Indicators of Currency Crises," IMF Working Papers 97/79, International Monetary Fund.
    6. Roberto Chang & Andres Velasco, 1998. "Financial Crises in Emerging Markets," NBER Working Papers 6606, National Bureau of Economic Research, Inc.
    7. Steven Riess Weisbrod & Liliana Rojas-Suárez, 1995. "Financial Fragilities in Latin America," IMF Occasional Papers 132, International Monetary Fund.
    8. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 401-19, June.
    9. Steven Radelet & Jeffrey Sachs, 1998. "The Onset of the East Asian Financial Crisis," NBER Working Papers 6680, National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:
    1. George Hondroyiannis & Harry Kelejian & George Tavlas, 2009. "Spatial Aspects of Contagion among Emerging Economies," Spatial Economic Analysis, Taylor & Francis Journals, vol. 4(2), pages 191-211.
    2. 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.
    3. Bayoumi, Tamim & Fazio, Giorgio & Kumar, Manmohan & MacDonald, Ronald, 2007. "Fatal attraction: Using distance to measure contagion in good times as well as bad," Review of Financial Economics, Elsevier, vol. 16(3), pages 259-273.
    4. Tobias Knedlik, 2006. "Signaling Currency Crises in South Africa," IWH Discussion Papers 19, Halle Institute for Economic Research.
    5. Manz, Michael, 2010. "Information-based contagion and the implications for financial fragility," European Economic Review, Elsevier, vol. 54(7), pages 900-910, October.
    6. Marek Dabrowski, 2002. "Currency Crises in Emerging - Market Economis: Causes, Consequences and Policy Lessons," CASE Network Reports 0051, CASE-Center for Social and Economic Research.
    7. Marcel Fratzscher, 2000. "On Currency Crises and Contagion," Working Paper Series WP00-9, Peterson Institute for International Economics.
    8. Younes Boujelbène & Majdi Ksantini, 2009. "La transmission entre les marchés boursiers :Une analyse en composante principale," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 52(2), pages 161-194.
    9. Morris Goldstein, 2001. "IMF Structural Conditionality: How Much is Too Much?," Working Paper Series WP01-4, Peterson Institute for International Economics.
    10. Fazio, Giorgio, 2007. "Extreme interdependence and extreme contagion between emerging markets," Journal of International Money and Finance, Elsevier, vol. 26(8), pages 1261-1291, December.
    11. Brana, Sophie & Lahet, Delphine, 2009. "Capital requirement and financial crisis: The case of Japan and the 1997 Asian crisis," Japan and the World Economy, Elsevier, vol. 21(1), pages 97-104, January.
    12. Helmut Wagner & Wolfram Berger, 2003. "Financial Globalization and Monetary Policy," DNB Staff Reports (discontinued) 95, Netherlands Central Bank.
    13. Khalid, Ahmed M. & Kawai, Masahiro, 2003. "Was financial market contagion the source of economic crisis in Asia?: Evidence using a multivariate VAR model," Journal of Asian Economics, Elsevier, vol. 14(1), pages 131-156, February.

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