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Trade and Financial Contagion in Currency Crises

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Author Info

  • Ranil Salgado
  • Luca Antonio Ricci
  • Francesco Caramazza

Abstract

This paper investigates empirically the relevance of external, domestic, and financial weaknesses as well as trade and financial linkages in inducing financial crises for a sample of 61 emerging market and industrial countries. A panel probit estimation finds these economic indicators to be significant for emerging market countries during the Mexican, Asian, and Russian crises. In particular, the indicators of vulnerability to international financial spillover (common creditor) and of financial fragility (reserve adequacy) are highly significant and appear to explain the apparent regional concentration of these crises. Exchange rate regimes and capital controls, however, do not seem to matter.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 00/55.

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Length: 46
Date of creation: 01 Mar 2000
Date of revision:
Handle: RePEc:imf:imfwpa:00/55

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Related research

Keywords: Trade; contagion; exchange rate; currency crises; asian crisis; crisis country; crisis countries; financial contagion; exchange rate regimes; financial crises; real exchange rate; exchange rate appreciation; competitiveness; banking crises; crisis episodes; foreign exchange; exchange rates; financial crisis; foreign exchange market; banking crisis; speculative attacks; current account balance; exchange rate regime; exchange rate changes; currency crisis; exchange restrictions; exchange arrangements; fixed exchange rate; crisis economies; real exchange rate appreciation; real effective exchange rate; currency depreciation; effective exchange rate; fixed exchange rate regimes; flexible exchange rate; financial distress; pre-crisis; flexible exchange rate regime; real effective exchange rates; debt crisis; international financial contagion; devaluation crisis; fixed exchange rate regime; exchange rate arrangements; country exchange rate; nominal exchange rate; early warning system; real exchange rates; exchange rate movements; exchange rate pressures; early warning systems; crisis episode; asian financial crisis; balance of payments crisis; dollar exchange rate; exchange market intervention; foreign exchange reserves; payments crisis; crisis index; financial indicators; exchange reserves; exchange rate misalignment; effective exchange rates; exchange rate policy;

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References

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  1. Goldfajn, Ilan & Valdes, Rodrigo O., 1998. "Are currency crises predictable?," European Economic Review, Elsevier, vol. 42(3-5), pages 873-885, May.
  2. Kaminsky, Graciela L. & Reinhart, Carmen M., 2000. "On crises, contagion, and confusion," Journal of International Economics, Elsevier, vol. 51(1), pages 145-168, June.
  3. Reinhart, Carmen & Calvo, Sara, 1996. "Capital Flows to Latin America: Is There Evidence of Contagion Effects?”," MPRA Paper 7124, University Library of Munich, Germany.
  4. Giancarlo Corsetti & Paolo Pesenti & Nouriel Roubini, 1998. "What Caused the Asian Currency and Financial Crisis?," Temi di discussione (Economic working papers) 343, Bank of Italy, Economic Research and International Relations Area.
  5. Roberto Rigobon, 1999. "On the Measurement of the International Propagation of Shocks," NBER Working Papers 7354, National Bureau of Economic Research, Inc.
  6. Reinhart, Carmen & Kaminsky, Graciela & Lizondo, Saul, 1998. "Leading Indicators of Currency Crises," MPRA Paper 6981, University Library of Munich, Germany.
  7. Christian B. Mulder & Matthieu Bussière, 1999. "External Vulnerability in Emerging Market Economies," IMF Working Papers 99/88, International Monetary Fund.
  8. Andrew Berg & Catherine Pattillo, 1999. "Are Currency Crises Predictable? A Test," IMF Staff Papers, Palgrave Macmillan, vol. 46(2), pages 1.
  9. Paul Cashin & Manmohan S. Kumar & C. John McDermott, 1995. "International Integration of Equity Markets and Contagion Effects," IMF Working Papers 95/110, International Monetary Fund.
  10. Joshua Aizenman & Pierre-Richard Agénor, 1997. "Contagion and Volatility with Imperfect Credit Markets," IMF Working Papers 97/127, International Monetary Fund.
  11. 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.
  12. Eduardo Levy Yeyati & Angel J. Ubide, 1998. "Crises, Contagion, and the Closed," IMF Working Papers 98/143, International Monetary Fund.
  13. 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.
  14. Morris Goldstein & Carmen M. Reinhart, 2000. "Assessing Financial Vulnerability: An Early Warning System for Emerging Markets," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 100.
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