Contagion of currency crises: Some theoretical and empirical analysis
AbstractThis paper investigates contagion effects. In a model with highly and lowly informed investors we show that a currency crisis in one country can trigger a crisis in another country. Portfolio losses of the highly informed investors in one country will force them to withdraw capital from the other country. The behavior of the lowly informed investors multiplies this effect and the other country becomes more and more vulnerable. In the empirical part we focus on the Asian crisis (1997/98). Using a LOGIT approach we can show that contagion, in the sense of a crisis not explainable by economic fundamentals but by exchange rate losses resulting from investment in other countries, seems to have caused the currency crises of the Philippines and especially of Singapore. --
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Bibliographic InfoPaper provided by Dresden University of Technology, Faculty of Business and Economics, Department of Economics in its series Dresden Discussion Paper Series in Economics with number 02/02.
Date of creation: 2002
Date of revision:
Contagion; Currency crises; Asian crisis;
Other versions of this item:
- Karmann, Alexander & Greßmann, Oliver & Hott, Christian, 2002. "Contagion of currency crises: Some theoretical and empirical analysis," Research Notes 02-2, Deutsche Bank Research.
- F3 - International Economics - - International Finance
- F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
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