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)
Volume (Year): 9 (2006)
Issue (Month): 2 (April)
|Contact details of provider:|| Postal: |
Web page: http://www.EconomicDynamics.org/review.htm
More information through EDIRC
|Order Information:|| Web: http://www.EconomicDynamics.org/RED17.htm 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.:
- 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.
- 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.).
- Bullard, James & Cho, In-Koo, 2003.
"Escapist policy rules,"
CFS Working Paper Series
2003/38, Center for Financial Studies (CFS).
- 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," Computing in Economics and Finance 2003 262, Society for Computational Economics.
- Noah Williams, 2003. "Small Noise Asymptotics for a Stochastic Growth Model," NBER Working Papers 10194, National Bureau of Economic Research, Inc.
- In-Koo Cho & Kenneth Kasa, 2003.
"Learning Dynamics and Endogenous Currency Crises,"
Computing in Economics and Finance 2003
132, Society for Computational Economics.
- 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.
- 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 Pollicy and Currency Crises," Working Papers 99.05, Swiss National Bank, Study Center Gerzensee.
- 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.
- 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.
- William Poole, 2002.
49, Federal Reserve Bank of St. Louis.
- Andrea Gerali & Francesco Lippi, 2002.
"On the 'conquest' of inflation,"
Temi di discussione (Economic working papers)
444, Bank of Italy, Economic Research and International Relations Area.
- Bruce McGough, 2006.
Royal Economic Society, vol. 116(511), pages 507-528, 04.
- Thomas Sargent & Noah Williams & Tao Zha, 2009.
"The Conquest of South American Inflation,"
Journal of Political Economy,
University of Chicago Press, vol. 117(2), pages 211-256, 04.
- Thomas Sargent & Noah Williams & Tao Zha, 2006. "The conquest of South American inflation," Working Paper 2006-20, Federal Reserve Bank of Atlanta.
- Thomas Sargent & Noah Williams & Tao Zha, 2006. "The Conquest of South American Inflation," NBER Working Papers 12606, National Bureau of Economic Research, Inc.
- 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.
- Masson, Paul, 1999. "Contagion:: macroeconomic models with multiple equilibria," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 587-602, August.
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 references are entirely missing, you can add them using this form.