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Bank Lending and Contagion: Evidence from the Asian Crisis

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  • Reinhart, Carmen
  • Kaminsky, Graciela

Abstract

This paper analyzes how the crisis in Asia spread during the second half of 1997. We cast our net wide and investigate several possible trade and financial linkages among the Asian economies. We construct a series of “contagion vulnerability indices,” which capture the various manifestations of exposure through trade and finance to the initial crisis country and contrast the predictions of this index to actual outcomes during the Asian crisis. We pay attention to the reversal in bank lending of Japanese and European banks, which were lending heavily to emerging Asia on the eve of the crisis. Daily interest rate and exchange rate data for Indonesia, Malaysia, the Philippines, South Korea, and Thailand are used to assess whether the patterns of causality and interdependence changed as the crisis spread, as well as to answer question of whether interdependence among the Asian economies has changed as the result of the crisis.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 7580.

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Date of creation: 2001
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Handle: RePEc:pra:mprapa:7580

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  1. Barry Eichengreen & Andrew K. Rose & Charles Wyplosz, 1996. "Contagious Currency Crises," NBER Working Papers 5681, National Bureau of Economic Research, Inc.
  2. Graciela Laura Kaminsky, 1999. "Currency and Banking Crises - The Early Warnings of Distress," IMF Working Papers 99/178, International Monetary Fund.
  3. Ilan Goldfajn & Taimur Baig, 1999. "Financial market contagion in the Asian crisis," Textos para discussão 400, Department of Economics PUC-Rio (Brazil).
  4. Glick, Reuven & Rose, Andrew K., 1999. "Contagion and trade: Why are currency crises regional?," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 603-617, August.
  5. Gerlach, Stefan & Smets, Frank, 1994. "Contagious Speculative Attacks," CEPR Discussion Papers 1055, C.E.P.R. Discussion Papers.
  6. Kaminsky, Graciela & Lizondo, Saul & Reinhart, Carmen M., 1997. "Leading indicators of currency crises," Policy Research Working Paper Series 1852, The World Bank.
  7. Calvo, Guillermo A. & Mendoza, Enrique, 1997. "Rational Herd Behavior and the Globalization of Securities Markets," Working Papers 97-26, Duke University, Department of Economics.
  8. Kaminsky, Graciela L. & Schmukler, Sergio L., 1999. "What triggers market jitters? A chronicle of the Asian crisis," Policy Research Working Paper Series 2094, The World Bank.
  9. Reinhart, Carmen & Goldstein, Morris & Kaminsky, Graciela, 2000. "Assessing financial vulnerability, an early warning system for emerging markets: Introduction," MPRA Paper 13629, University Library of Munich, Germany.
  10. 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.).
  11. Carmen M. Reinhart & Sara Calvo, 1996. "Capital Flows to Latin America: Is There Evidence of Contagion Effects?," Peterson Institute Press: Chapters, in: Guillermo A. Calvo & Morris Goldstein & Eduard Hochreiter (ed.), Private Capital Flows to Emerging Markets After the Mexican Crisis, pages 151-171 Peterson Institute for International Economics.
  12. Taimur Baig & Ilan Goldfajn, 1998. "Financial Market Contagion in the Asian Crisis," IMF Working Papers 98/155, International Monetary Fund.
  13. 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.
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