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Two Hundred Years of Contagion

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  • Reinhart, Carmen
  • Kaminsky, Graciela
  • Vegh, Carlos

Abstract

Over the past two hundred years -- some would argue even longer -- financial events, such as the devaluation of a currency or an announcement of default, have been capable of triggering an immediate adverse chain reaction among countries within a region and in some cases across regions. The impact of these shocks on the countries unfortunate enough to be affected usually included sharp declines in equity prices, a spike in the cost of borrowing in international capital markets, and a significant drop in the availability of capital. In more extreme cases, countries have lost access to cross-border capital flows. Significant declines in output have been the norm in these episodes. Yet, it is remarkable that on other occasions similar events have failed to trigger any international reaction, at least on impact. In some instances, financial markets appear to be quite willing to shrug off an event that will obviously have strong trade and real sector repercussions on the crisis country’s neighbors. We explore what leads some crises to be contagious and others not

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 13229.

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Date of creation: 2002
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Handle: RePEc:pra:mprapa:13229

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Keywords: financial contagion crisis history trade banks lending;

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References

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  1. Michael Bordo & Barry Eichengreen, 1999. "Is our Current International Economic Environment Unusually Crisis Prone?," RBA Annual Conference Volume, Reserve Bank of Australia, in: David Gruen & Luke Gower (ed.), Capital Flows and the International Financial System Reserve Bank of Australia.
  2. Morris Goldstein, 1998. "The Asian Financial Crisis," Policy Briefs, Peterson Institute for International Economics PB98-1, Peterson Institute for International Economics.
  3. Gonzalo C. Pastor & Tatiana Damjanovic, 2001. "The Russian Financial Crisis and its Consequences for Central Asia," IMF Working Papers, International Monetary Fund 01/169, International Monetary Fund.
  4. Reinhart, Carmen & Kaminsky, Graciela, 1998. "On crises, contagion, and confusion," MPRA Paper 13709, University Library of Munich, Germany.
  5. Reuven Glick & Andrew K. Rose, 1998. "Contagion and Trade: Why Are Currency Crises Regional?," NBER Working Papers 6806, National Bureau of Economic Research, Inc.
  6. Ranil Salgado & Luca Antonio Ricci & Francesco Caramazza, 2000. "Trade and Financial Contagion in Currency Crises," IMF Working Papers, International Monetary Fund 00/55, International Monetary Fund.
  7. Kaminsky, Graciela L. & Schmukler, Sergio L., 1999. "What triggers market jitters?: A chronicle of the Asian crisis," Journal of International Money and Finance, Elsevier, Elsevier, vol. 18(4), pages 537-560, August.
  8. Jose De Gregorio & Sebastian Edwards & Rodrigo O. Valdes, 2000. "Controls on Capital Inflows: Do they Work?," NBER Working Papers 7645, National Bureau of Economic Research, Inc.
  9. Kaminsky, Graciela L. & Reinhart, Carmen M., 2002. "Financial markets in times of stress," Journal of Development Economics, Elsevier, Elsevier, vol. 69(2), pages 451-470, December.
  10. Larry Neal & Marc D. Weidenmier, 2001. "Crises in The Global Economy from Tulips to Today: Contagion and Consequences," Claremont Colleges Working Papers, Claremont Colleges 2001-32, Claremont Colleges.
  11. Guillermo A. Calvo & Enrique G. Mendoza, 1999. "Regional Contagion and the Globalization of Securities Markets," NBER Working Papers 7153, National Bureau of Economic Research, Inc.
  12. Amartya Lahiri & Carlos A. Vegh, 2000. "Delaying the Inevitable: Optimal Interest Rate Policy and BOP Crises," NBER Working Papers 7734, National Bureau of Economic Research, Inc.
  13. Reinhart, Carmen & Calvo, Guillermo, 2000. "When Capital Inflows Come to a Sudden Stop: Consequences and Policy Options," MPRA Paper 6982, University Library of Munich, Germany.
  14. Ernesto Talvi & Carlos A. Vegh, 2000. "Tax Base Variability and Procyclical Fiscal Policy," NBER Working Papers 7499, National Bureau of Economic Research, Inc.
  15. Eichengreen, Barry & Rose, Andrew & Wyplosz, Charles, 1996. " Contagious Currency Crises: First Tests," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 98(4), pages 463-84, December.
  16. Larry Neal, 1998. "The financial crisis of 1825 and the restructuring of the British financial system," Review, Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, issue May, pages 53-76.
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Citations

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Cited by:
  1. Pavlova, Anna & Rigobon, Roberto, 2004. "Asset Prices and Exchange Rates," Working papers, Massachusetts Institute of Technology (MIT), Sloan School of Management 4322-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  2. Constanza Martinez & Manuel Ramirez, 2011. "International propagation of shocks: an evaluation of contagion effects for some Latin American countries," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 4(2), pages 213-233, December.
  3. María Florencia Aráoz & Ana María Cerro & Osvaldo Meloni & Tatiana Soria Genta, 2009. "Empirical Evidence on Fiscal Policy Sustainability in Argentina," The IUP Journal of Monetary Economics, IUP Publications, IUP Publications, vol. 0(3-4), pages 116-127, August.
  4. Didier, Tatiana & Mauro, Paolo & Schmukler, Sergio L., 2008. "Vanishing financial contagion?," Journal of Policy Modeling, Elsevier, Elsevier, vol. 30(5), pages 775-791.
  5. Se-Jik Kim, 2004. "Timing of International Bailouts," IMF Working Papers, International Monetary Fund 04/9, International Monetary Fund.

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