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The Russian default and the contagion to Brazil

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  • Taimur Baig

    ()

  • Ilan Goldfajn

    ()
    (Department of Economics PUC-Rio)

Abstract

This paper investigates the contagion from Russia to Brazil in late 1998 under two dimensions players involved and the timing of events. The data does not seem to reflect a compensatory liquidation of assets story by international institutional investors. It does contribute, however, to the suspicion that the contagion was triggered by foreign investors panicking from the Russian crisis, and joining local residents on their speculation against the Brazilian real. Adjusted correlations in the Brady market increase significantly during the crisis, which lends support to the view that if there was a contagion from Russia to Brazil, the most likely place of the transmission was the off-shore Brady market. Finally, the paper does not support the hypothesis that it was the liquidity crisis in mature markets, and not the Russian crisis, that timed the crisis in Brazil.

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Bibliographic Info

Paper provided by Department of Economics PUC-Rio (Brazil) in its series Textos para discussão with number 420.

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Length: 49 pages
Date of creation: Mar 2000
Date of revision:
Publication status: Published in Stijn Claessens; Kristin Forbes. International Financial Contagion. Kluwer Academic Publishers, p. 268-299, 2001
Handle: RePEc:rio:texdis:420

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  1. Pierre-Richard Agénor & Joshua Aizenman, 1998. "Contagion and Volatility with Imperfect Credit Markets," IMF Staff Papers, Palgrave Macmillan, vol. 45(2), pages 207-235, June.
  2. Ilan Goldfajn & Taimur Baig, 1999. "Financial market contagion in the Asian crisis," Textos para discussão 400, Department of Economics PUC-Rio (Brazil).
  3. Menzie D. Chinn, 1998. "Before the Fall: Were East Asian Currencies Overvalued?," NBER Working Papers 6491, National Bureau of Economic Research, Inc.
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