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The center and the periphery: The globalization of financial turmoil

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Author Info
Reinhart, Carmen
Kaminsky, Graciela

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Abstract

This paper studies how financial turbulence in emerging market countries can spread across borders. We construct indices of “financial globalization” and evaluate the repercussions of turmoil in three emerging markets that experienced financial crises in the late 1990s: Brazil, Russia, and Thailand. Our findings indicate that financial turbulence in these countries only spreads globally when they affect asset markets in one or more of the world’s financial centers. Otherwise, spillovers are confined to countries in the same region. Also, episodes of worldwide globalization of turmoil are mostly episodes of synchronized crashes while regional turbulence include both joint crashes and rallies.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 14100.

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Date of creation: 2008
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Handle: RePEc:pra:mprapa:14100

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Related research
Keywords: financial crises contagion stock prices exchange rate crashes turbulence interest rate spreads default;

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Find related papers by JEL classification:
F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
F30 - International Economics - - International Finance - - - General
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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  1. King, Mervyn & Sentana, Enrique & Wadhwani, Sushil, 1994. "Volatility and Links between National Stock Markets," Econometrica, Econometric Society, vol. 62(4), pages 901-33, July. [Downloadable!] (restricted)
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  2. Barry Eichengreen & Andrew K. Rose & Charles Wyplosz, 1996. "Contagious Currency Crises," NBER Working Papers 5681, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1993. "“Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," MPRA Paper 7125, University Library of Munich, Germany. [Downloadable!]
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  4. Kee-Hong Bae & G. Andrew Karolyi & Rene M. Stulz, 2000. "A New Approach to Measuring Financial Contagion," NBER Working Papers 7913, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Reinhart, Carmen & Calvo, Sara, 1996. "Capital Flows to Latin America: Is There Evidence of Contagion Effects?”," MPRA Paper 7124, University Library of Munich, Germany. [Downloadable!]
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  6. Reinhart, Carmen & Kaminsky, Graciela, 2001. "Bank Lending and Contagion: Evidence from the Asian Crisis," MPRA Paper 7580, University Library of Munich, Germany. [Downloadable!]
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  7. Reinhart, Carmen & Kaminsky, Graciela, 1998. "On crises, contagion, and confusion," MPRA Paper 13709, University Library of Munich, Germany. [Downloadable!]
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  8. Kaminsky, Graciela & Lyons, Richard & Schmukler, Sergio, 2000. "Managers, investors, and crises : mutual fund strategies in emerging markets," Policy Research Working Paper Series 2399, The World Bank. [Downloadable!]
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  9. Jón Daníelsson & Casper G. de Vries, 1998. "Value-at-Risk and Extreme Returns," Tinbergen Institute Discussion Papers 98-017/2, Tinbergen Institute. [Downloadable!]
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  10. Calvo, Guillermo A. & Mendoza, Enrique G., 2000. "Rational contagion and the globalization of securities markets," Journal of International Economics, Elsevier, vol. 51(1), pages 79-113, June. [Downloadable!] (restricted)
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  11. Olivier de Bandt & Philipp Hartmann, 2000. "Systemic risk: a survey," Working Paper Series 35, European Central Bank. [Downloadable!]
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  12. 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. [Downloadable!]
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  13. Jeffrey A. Frankel & Sergio L. Schmukler, 1996. "Crisis, contagion, and country funds: effects on East Asia and Latin America," Proceedings, Federal Reserve Bank of San Francisco, pages 232-266.
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  14. Longin, Francois M, 1996. "The Asymptotic Distribution of Extreme Stock Market Returns," Journal of Business, University of Chicago Press, vol. 69(3), pages 383-408, July. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. Reinhart, Carmen & Vegh, Carlos & Velasco, Andres, 2008. "Money, Crises, and Transition Essays in Honor of Guillermo A. Calvo: An Introduction," MPRA Paper 13232, University Library of Munich, Germany. [Downloadable!]
  2. Alfonso Mendoza, 2004. "Modelling Long Memory and Risk Premia in Latin American Sovereign Bond Markets," Econometrics 0410004, EconWPA. [Downloadable!]
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  3. MArdi Dungey & Renee Fry & Brenda Gonzales-Hermosillo & Vance L. Martin & Chrismin Tang, 2008. "Are Financial Crises Alike?," CAMA Working Papers 2008-15, Australian National University, Centre for Applied Macroeconomic Analysis. [Downloadable!]
  4. Mardi Dungey & Renee Fry & Brenda Gonzales-Hermosillo & Vance L. Martin, 2005. "Shocks And Systemic Influences: Contagion In Global Equity Markets In 1998," CAMA Working Papers 2005-15, Australian National University, Centre for Applied Macroeconomic Analysis. [Downloadable!]
  5. Massacci, D., 2007. "Identification and Estimation in an Incoherent Model of Contagion," Cambridge Working Papers in Economics 0744, Faculty of Economics, University of Cambridge. [Downloadable!]
  6. Graciela L. Kaminsky, 2008. "Crises and Sudden Stops: Evidence from International Bond and Syndicated-Loan Markets," NBER Working Papers 14249, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. Mardi Dungey & Renee Fry & Vance Martin & Brenda González-Hermosillo, 2004. "Characterizing Global Investors' Risk Appetite for Emerging Market Debt During Financial Crises," IMF Working Papers 03/251, International Monetary Fund. [Downloadable!]
  8. Mardi Dungey & Renee Fry & Vance Martin & Brenda González-Hermosillo, 2002. "International Contagion Effects from the Russian Crisis and the LTCM Near-Collapse," IMF Working Papers 02/74, International Monetary Fund. [Downloadable!]
  9. Marco Cipriani & Graciela Kaminsky, 2007. "Volatility in International Financial Market Issuance: The Role of the Financial Center," Open Economies Review, Springer, vol. 18(2), pages 157-176, April. [Downloadable!] (restricted)
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  10. Felices, Guillermo & Grisse, Christian & Yang, Jing, 2009. "International financial transmission: emerging and mature markets," Bank of England working papers 373, Bank of England. [Downloadable!]
  11. Pavlova, Anna & Rigobon, Roberto, 2008. "The Role of Portfolio Constraints in the International Propagation of Shocks," CEPR Discussion Papers 6647, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  12. Carlos Fernando Lagrota R. Lopes, 2004. "Monetary Policy And External Vulnerability In Brazil," Anais do XXXII Encontro Nacional de Economia [Proceedings of the 32th Brazilian Economics Meeting] 071, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics]. [Downloadable!]
  13. Reinhart, Carmen, 2006. "What is next for financial globalization: Some perspective gained from the experience of capital flows to emerging market economies," MPRA Paper 13400, University Library of Munich, Germany. [Downloadable!]
  14. Heiko Hesse & Nathaniel Frank, 2009. "Financial Spillovers to Emerging Markets during the Global Financial Crisis," IMF Working Papers 09/104, International Monetary Fund. [Downloadable!]
  15. Brenda González-Hermosillo, 2008. "Investors’ Risk Appetite and Global Financial Market Conditions," IMF Working Papers 08/85, International Monetary Fund. [Downloadable!]
  16. Irina Tytell & Selim Elekdag & Ravi Balakrishnan & Stephan Danninger, 2009. "The Transmission of Financial Stress from Advanced to Emerging Economies," IMF Working Papers 09/133, International Monetary Fund. [Downloadable!]
  17. Roman Kraeussl, 2003. "Do Changes in Sovereign Credit Ratings Contribute to Financial Contagion in Emerging Market Crises?," CFS Working Paper Series 2003/22, Center for Financial Studies. [Downloadable!]
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