Strong Contagion with Weak Spillovers
In this paper, we develop an explanation for why events in one market may trigger similar events in other markets, even though at first sight the markets appear to be only weakly related. We allow for escape dynamics in each market, and show that an escape in one market is contagious because it more than doubles the probability of a similar escape in another market. We claim that contagion is strong since escapes become highly synchronised across markets. Spillovers are weak because the instantaneous spillover of events from one market to another is small. To illustrate our result, we demonstrate how a currency crisis may be contagious with only weak links between countries. Other examples where weak spillovers would create strong contagion are various models of monetary policy, imperfect competition and endogenous growth. (Copyright: Elsevier)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 9 (2006)
Issue (Month): 2 (April)
|Contact details of provider:|| Postal: Marina Azzimonti, Department of Economics, Stonybrook University, 10 Nicolls Road, Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/red/
More information through EDIRC
|Order Information:|| Web: https://www.economicdynamics.org/subscription-information/ Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Thomas J. Sargent & Noah Williams & Tao Zha, 2006.
"The conquest of South American inflation,"
FRB Atlanta Working Paper
2006-20, Federal Reserve Bank of Atlanta.
- Cho, In-Koo & Kasa, Kenneth, 2008.
"Learning Dynamics And Endogenous Currency Crises,"
Cambridge University Press, vol. 12(02), pages 257-285, April.
- Masson, Paul, 1999. "Contagion:: macroeconomic models with multiple equilibria," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 587-602, August.
- Noah Williams, 2003.
"Small Noise Asymptotics for a Stochastic Growth Model,"
Computing in Economics and Finance 2003
262, Society for Computational Economics.
- Williams, Noah, 2004. "Small noise asymptotics for a stochastic growth model," Journal of Economic Theory, Elsevier, vol. 119(2), pages 271-298, December.
- Noah Williams, 2003. "Small Noise Asymptotics for a Stochastic Growth Model," NBER Working Papers 10194, National Bureau of Economic Research, Inc.
- Bullard, James & Cho, In-Koo, 2003.
"Escapist policy rules,"
CFS Working Paper Series
2003/38, Center for Financial Studies (CFS).
- Bruce McGough, 2006.
Royal Economic Society, vol. 116(511), pages 507-528, 04.
- Philippe Aghion & Philippe Bacchetta & Abhijit Banerjee, 1999.
"A Simple Model of Monetary Pollicy and Currency Crises,"
99.05, Swiss National Bank, Study Center Gerzensee.
- Aghion, Philippe & Bacchetta, Philippe & Banerjee, Abhijit, 2000. "A simple model of monetary policy and currency crises," European Economic Review, Elsevier, vol. 44(4-6), pages 728-738, May.
- Philippe AGHION & Philippe BACCHETTA & Abhijit BANERJEE, 1999. "A Simple Model of Monetary Policy and Currency Crises," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9914, Université de Lausanne, Faculté des HEC, DEEP.
- William Poole & Robert H. Rasche, 2002.
Federal Reserve Bank of St. Louis, issue Nov, pages 1-6.
- Gerali, Andrea & Lippi, Francesco, 2001.
"On the 'Conquest' of Inflation,"
CEPR Discussion Papers
3101, C.E.P.R. Discussion Papers.
- Robert J. Tetlow & Peter von zur Muehlen, 2002.
"Avoiding Nash inflation: Bayesian and robust responses to model uncertainty,"
Finance and Economics Discussion Series
2002-9, Board of Governors of the Federal Reserve System (U.S.).
- Robert Tetlow & Peter von zur Muehlen, 2004. "Avoiding Nash Inflation: Bayesian and Robus Responses to Model Uncertainty," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(4), pages 869-899, October.
- Giorgio Primiceri, 2005.
"Why Inflation Rose and Fell: Policymakers' Beliefs and US Postwar Stabilization Policy,"
NBER Working Papers
11147, National Bureau of Economic Research, Inc.
- Giorgio E. Primiceri, 2006. "Why Inflation Rose and Fell: Policy-Makers' Beliefs and U. S. Postwar Stabilization Policy," The Quarterly Journal of Economics, Oxford University Press, vol. 121(3), pages 867-901.
- Kenneth Kasa, 2000.
"Learning, large deviations, and recurrent currency crises,"
Working Paper Series
2000-10, Federal Reserve Bank of San Francisco.
- Kenneth Kasa, 2004. "Learning, Large Deviations, And Recurrent Currency Crises," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(1), pages 141-173, 02.
- In-Koo Cho & Noah Williams & Thomas J. Sargent, 2002.
"Escaping Nash Inflation,"
Review of Economic Studies,
Oxford University Press, vol. 69(1), pages 1-40.
When requesting a correction, please mention this item's handle: RePEc:red:issued:v:9:y:2006:i:2:p:263-283. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.