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Regional Vulnerability : The Case of East Asia

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  • Mody, Ashoka

    (International Monetary Fund)

  • Taylor, Mark P.

    (University of Warwick and Centre for Economic Policy Research)

Abstract

In a case study of six East Asian economies, we use dynamic factor analysis to estimate a regional component of the exchange market pressure index (EMPI) as a measure of regional financial stress. The extent to which this indicator is explained by regional economic and financial factors is interpreted as regional vulnerability to crisis. We find that regional external liabilities and exuberance in domestic stock and credit markets, as well as the US high yield spread, were positively correlated with regional vulnerability. Individual country EMPIs are also explained by regional factors, with country-specific factors and trade linkages playing little role.

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Bibliographic Info

Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 776.

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Length: 29 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:wrk:warwec:776

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Keywords: currency crisis ; contagion ; vulnerability ; dynamic factor analysis;

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References

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  1. Menzie Chinn & Michael Dooley, 1995. "Asia-Pacific Capital Markets: Measurement of Integration and the Implications for Economic Activity," NBER Working Papers 5280, National Bureau of Economic Research, Inc.
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  8. Ashoka Mody & Mark P. Taylor, 2003. "The High-Yield Spread as a Predictor of Real Economic Activity: Evidence of a Financial Accelerator for the United States," IMF Staff Papers, Palgrave Macmillan, vol. 50(3), pages 3.
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Citations

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Cited by:
  1. Ashoka Mody & Alina Carare, 2010. "Spillovers of Domestic Shocks: Will They Counteract the "Great Moderation"?," IMF Working Papers 10/78, International Monetary Fund.
  2. Jie Li & Alice Ouyang, 2011. "Currency crises: can high reserves offset vulnerable fundamentals?," Applied Economics, Taylor & Francis Journals, vol. 43(16), pages 2055-2069.
  3. Klaassen, Franc & Jager, Henk, 2011. "Definition-consistent measurement of exchange market pressure," Journal of International Money and Finance, Elsevier, vol. 30(1), pages 74-95, February.
  4. Fedorova, Ye. & Lukasevich, I., 2012. "Index of Exchange Market Pressure (EMP): Specifics of Emerging Markets," Journal of the New Economic Association, New Economic Association, vol. 14(2), pages 51-66.
  5. Gabriele Fiorentini & Enrique Sentana, 2013. "Dynamic Specification Tests For Dynamic Factor Models," Working Papers wp2013_1306, CEMFI.
  6. Baur, Dirk G. & Fry, Renée A., 2009. "Multivariate contagion and interdependence," Journal of Asian Economics, Elsevier, vol. 20(4), pages 353-366, September.

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