Foreign exchange markets in South-East Asia 1990-2004: An empirical analysis of spillovers during crisis and non-crisis periods
The East Asian crisis of 1997 sparked an extensive literature in an effort to explain the causes and spread of heightened foreign exchange (FX) market pressures in the region. In this paper we model FX movements and calculate spillover effects covering the extended period between 1990 and 2004. Using Markov switching vector autoregressions, we find substantial evidence that FX correlations vary across crisis and non-crisis states, a result that bears implications for international portfolio diversification and reserve pooling. Contagion effects are also present during crises. Finally, we gauge the ability of stock market indices to forecast time-varying transition probabilities and discover positive results
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Volume (Year): 18 (2007)
Issue (Month): 1 (February)
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