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Contagion, Monsoons, and Domestic Turmoil in Indonesia

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Author Info

  • Sweta Chaman Saxena
  • Valerie Cerra

Abstract

This paper investigates whether Indonesia’s recent currency crisis was due to domestic fundamentals, common external shocks (“monsoons”), or contagion from neighboring countries. Markov-switching models attribute speculative pressure on Indonesia’s currency to domestic political and financial factors and contagion from speculative pressures in Thailand and Korea. In particular, the results from a time-varying transition probability Markov-switching model (which overcomes some drawbacks of previous methods) show that inclusion of exchange rate pressures from Thailand and Korea in the transition probabilities improves the conditional probabilities of crisis in Indonesia. There is also evidence of contagion in the stock market.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 00/60.

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Length: 26
Date of creation: 01 Mar 2000
Date of revision:
Handle: RePEc:imf:imfwpa:00/60

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Related research

Keywords: Economic models; contagion; probability; probabilities; asian crisis; equation; currency crises; currency crisis; statistics; probability model; time series; financial statistics; financial crisis; sampling; time series analysis; asian financial crisis; standard deviation; covariance; banking crises; competitiveness; corporate sector; survey; crisis countries; maximum likelihood estimation; correlation; recessions; correlations; random variables; statistic; models of currency crisis; cointegration; predictability; standard deviations; fitted value; independent variables; financial deepening; asian currency crisis; bank runs; deposit insurance; granger causality; computation; crisis contagion; estimation procedure; prediction; financial crises; exchange rate crisis; accounting standards; financial indicators; statistical analysis; conditional expectation; sample bias; bayesian analysis; sample mean;

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Citations

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Cited by:
  1. Sweta Saxena & Kar-yiu Wong, 1999. "Currency Crises and Capital Control: A Survey," Discussion Papers in Economics at the University of Washington 0045, Department of Economics at the University of Washington.
  2. Paul Masson, 1999. "Multiple equilibria, contagion, and the emerging market crises," Proceedings, Federal Reserve Bank of San Francisco, issue Sep.
  3. 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.
  4. Sarai Criado Nuevo, . "Some critics to the contagion correlation test," Working Papers on International Economics and Finance 05-01, FEDEA.

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