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International crises, instability periods and contagion: the case of the ERM

  • Emanuele Bacchiocchi

    ()

  • Marta Bevilacqua

    ()

In this paper we propose a two step procedure for modelling the propagation of financial shocks. The first step consists in the estimation, by means of SWARCH models, of the conditional probability of being in a period of high volatility while, in the second step such indicators are included in a structural simultaneous models for interdependences among different countries. The results show that episodes of financial crisis effectively happened during periods of high volatility and that such measures of instability are important in explaining the propagation of devaluation expectations between six European Countries during the ERM period.

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File URL: http://hdl.handle.net/10.1007/s12232-009-0064-y
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Article provided by Springer & Happiness Economics and Interpersonal Relations (HEIRS) in its journal International Review of Economics.

Volume (Year): 56 (2009)
Issue (Month): 2 (June)
Pages: 105-122

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Handle: RePEc:spr:inrvec:v:56:y:2009:i:2:p:105-122
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  1. Helen Higgs & Andrew Worthington, 2004. "Transmission of returns and volatility in art markets: a multivariate GARCH analysis," Applied Economics Letters, Taylor & Francis Journals, vol. 11(4), pages 217-222.
  2. Kristin Forbes & Roberto Rigobon, 1999. "No Contagion, Only Interdependence: Measuring Stock Market Co-movements," NBER Working Papers 7267, National Bureau of Economic Research, Inc.
  3. Mervyn A. King & Sushil Wadhwani, 1989. "Transmission of Volatility Between Stock Markets," NBER Working Papers 2910, National Bureau of Economic Research, Inc.
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  7. M. Hashem Pesaran & Andreas Pick, 2004. "Econometric Issues in the Analysis of Contagion," CESifo Working Paper Series 1176, CESifo Group Munich.
  8. Fratzscher, Marcel, 2002. "On currency crises and contagion," Working Paper Series 0139, European Central Bank.
  9. Hamilton, James D. & Susmel, Raul, 1994. "Autoregressive conditional heteroskedasticity and changes in regime," Journal of Econometrics, Elsevier, vol. 64(1-2), pages 307-333.
  10. Giampiero Gallo & Edoardo Otranto, 2006. "Volatility Transmission Across Markets: A Multi-Chain Markov Switching Model," Econometrics Working Papers Archive wp2006_04, Universita' degli Studi di Firenze, Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti".
  11. Eichengreen, Barry & Rose, Andrew & Wyplosz, Charles, 1996. " Contagious Currency Crises: First Tests," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(4), pages 463-84, December.
  12. Hamao, Yasushi & Masulis, Ronald W & Ng, Victor, 1990. "Correlations in Price Changes and Volatility across International Stock Markets," Review of Financial Studies, Society for Financial Studies, vol. 3(2), pages 281-307.
  13. Massacci, D., 2007. "Identification and Estimation in an Incoherent Model of Contagion," Cambridge Working Papers in Economics 0744, Faculty of Economics, University of Cambridge.
  14. Roberto Rigobon, 2003. "Identification Through Heteroskedasticity," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 777-792, November.
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