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The center and the periphery: The globalization of financial turmoil

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  • Reinhart, Carmen
  • Kaminsky, Graciela

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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Bibliographic Info

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

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  1. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1992. "Capital Inflows and Real Exchange Rate Appreciation in Latin America," MPRA Paper 13843, University Library of Munich, Germany.
  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. 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.
  4. Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers 544, Board of Governors of the Federal Reserve System (U.S.).
  5. Hartmann, P. & Straetmans, S. & De Vries, C.G., 2001. "Asset Market Linkages in Crisis Periods," Papers 71, Quebec a Montreal - Recherche en gestion.
  6. Jon DANIELSSON & Casper G. DE VRIES, 2000. "Value-at-Risk and Extreme Returns," Annales d'Economie et de Statistique, ENSAE, issue 60, pages 239-270.
  7. Eichengreen, Barry & Rose, Andrew K & Wyplosz, Charles, 1996. "Contagious Currency Crises," CEPR Discussion Papers 1453, C.E.P.R. Discussion Papers.
  8. Graciela Kaminsky & Richard K. Lyons & Sergio Schmukler, 2000. "Managers, Investors, and Crises: Mutual Fund Strategies in Emerging Markets," NBER Working Papers 7855, National Bureau of Economic Research, Inc.
  9. King, Mervyn & Sentana, Enrique & Wadhwani, Sushil, 1994. "Volatility and Links between National Stock Markets," Econometrica, Econometric Society, vol. 62(4), pages 901-33, July.
  10. Calvo, Sara & Reinhart, Carmen, 1996. "Capital flows to Latin America : Is there evidence of contagion effects?," Policy Research Working Paper Series 1619, The World Bank.
  11. 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.
  12. Longin, Francois M, 1996. "The Asymptotic Distribution of Extreme Stock Market Returns," The Journal of Business, University of Chicago Press, vol. 69(3), pages 383-408, July.
  13. Graciela L. Kaminsky & Carmen M. Reinhart, 2001. "Bank Lending and Contagion: Evidence from the Asian Crisis," NBER Chapters, in: Regional and Global Capital Flows: Macroeconomic Causes and Consequences, NBER-EASE Volume 10, pages 73-99 National Bureau of Economic Research, Inc.
  14. Kee-Hong Bae & G. Andrew Karolyi & René M. Stulz, 2003. "A New Approach to Measuring Financial Contagion," Review of Financial Studies, Society for Financial Studies, vol. 16(3), pages 717-763, July.
  15. 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.
  16. De Bandt, Olivier & Hartmann, Philipp, 2000. "Systemic risk: A survey," Working Paper Series 0035, European Central Bank.
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