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Evidence of interdependence and contagion using a frequency domain framework

  • Bodart, Vincent
  • Candelon, Bertrand

This paper proposes a new measure of contagion, based on the frequency analysis of causality developed recently by Breitung and Candelon [Breitung, J., Candelon, B. 2006. Testing for short and long-run causality: a frequency domain approach, Journal of Econometrics, 12, 363-378.]. This approach handles several of the statistical problems identified in the literature. It also permits clear differentiation between temporary and permanent shifts in cross-market linkages: the first case is contagion while the second one is simply a measure of interdependence among markets. With this new approach, we examine the "Tequila" and Asian crises and find evidence of contagion for both. During the Asian crisis, higher interdependence has also contributed to the diffusion of the crisis in Asia.

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Article provided by Elsevier in its journal Emerging Markets Review.

Volume (Year): 10 (2009)
Issue (Month): 2 (June)
Pages: 140-150

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Handle: RePEc:eee:ememar:v:10:y:2009:i:2:p:140-150
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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. 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.
  3. Jean-Marie Dufour & Eric Renault, 1998. "Short Run and Long Run Causality in Time Series: Theory," Econometrica, Econometric Society, vol. 66(5), pages 1099-1126, September.
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  9. Kee-Hong Bae & G. Andrew Karolyi & Rene M. Stulz, 2000. "A New Approach to Measuring Financial Contagion," NBER Working Papers 7913, National Bureau of Economic Research, Inc.
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  12. Geert Bekaert & Campbell R. Harvey, 2003. "Market Integration and Contagion," NBER Working Papers 9510, National Bureau of Economic Research, Inc.
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  14. Bollerslev, Tim, 1990. "Modelling the Coherence in Short-run Nominal Exchange Rates: A Multivariate Generalized ARCH Model," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 498-505, August.
  15. Breitung, Jorg & Candelon, Bertrand, 2006. "Testing for short- and long-run causality: A frequency-domain approach," Journal of Econometrics, Elsevier, vol. 132(2), pages 363-378, June.
  16. Kristin Forbes & Roberto Rigobon, 2000. "Contagion in Latin America: Definitions, Measurement, and Policy Implications," NBER Working Papers 7885, National Bureau of Economic Research, Inc.
  17. Corsetti, Giancarlo & Pericoli, Marcello & Sbracia, Massimo, 2005. "'Some contagion, some interdependence': More pitfalls in tests of financial contagion," Journal of International Money and Finance, Elsevier, vol. 24(8), pages 1177-1199, December.
  18. Van Rijckeghem, Caroline & Weder, Beatrice, 2001. "Sources of contagion: is it finance or trade?," Journal of International Economics, Elsevier, vol. 54(2), pages 293-308, August.
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