IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

The Uncertainty Channel of Contagion

  • Fritzi Koehler-Geib
Registered author(s):

    This paper analyzes the impact of uncertainty on the spread of stock market crises, both theoretically and empirically. The effect of uncertainty about the fundamentals on investment decisions is an important cause of financial crises propagating across countries. Firstly, a coordination game on investment illustrates the increasing effect of a surprise crisis in one country on the probability of a crisis in a second country through higher uncertainty there. An anticipated initial crisis generates the opposite effect. Secondly, these theoretical predictions are tested empirically. Fixed effects panel estimations validate the impact of the initial crisis on uncertainty in potentially-affected countries. Subsequently, probit estimations confirm the positive impact of uncertainty on the crisis probability in the affected economy. The results are robust across various specifications.

    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.

    File URL: http://www.bgpe.de/texte/DP/034_koehler.pdf
    File Function: First version, 2007
    Download Restriction: no

    Paper provided by Bavarian Graduate Program in Economics (BGPE) in its series Working Papers with number 034.

    as
    in new window

    Length: 44 pages
    Date of creation: Oct 2007
    Date of revision:
    Handle: RePEc:bav:wpaper:034_koehler
    Contact details of provider: Web page: http://www.bgpe.de/

    More information through EDIRC

    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.:

    as in new window
    1. anonymous, 1998. "How will the Asian financial crisis affect the Southeast?," Regional Update, Federal Reserve Bank of Atlanta, issue Jan, pages 1,3-4.
    2. Reuven Glick & Andrew K. Rose, 1998. "Contagion and trade: why are currency crises regional?," Pacific Basin Working Paper Series 98-03, Federal Reserve Bank of San Francisco.
    3. Broner, Fernando & Gelos, Gaston & Reinhart, Carmen, 2004. "When in peril, retrench: testing the portfolio channel of contagion," Proceedings, Federal Reserve Bank of San Francisco, issue Jun, pages 1-34.
    4. Guillermo A. Calvo & Enrique G. Mendoza, 1999. "Regional Contagion and the Globalization of Securities Markets," NBER Working Papers 7153, National Bureau of Economic Research, Inc.
    5. Carlsson, H. & Van Damme, E., 1990. "Global Games And Equilibrium Selection," Papers 9052, Tilburg - Center for Economic Research.
    6. Morris Goldstein, 1998. "The Asian Financial Crisis," Policy Briefs PB98-1, Peterson Institute for International Economics.
    7. Goldstein, Itay & Pauzner, Ady, 2004. "Contagion of self-fulfilling financial crises due to diversification of investment portfolios," Journal of Economic Theory, Elsevier, vol. 119(1), pages 151-183, November.
    8. Caramazza, Francesco & Ricci, Luca & Salgado, Ranil, 2004. "International financial contagion in currency crises," Journal of International Money and Finance, Elsevier, vol. 23(1), pages 51-70, February.
    9. Morris, S & Song Shin, H, 1996. "Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks," Economics Papers 126, Economics Group, Nuffield College, University of Oxford.
    10. Paolo Mauro & Tatiana Didier & Sergio L. Schmukler, 2006. "Vanishing Contagion?," IMF Policy Discussion Papers 06/01, International Monetary Fund.
    11. Andrew K. Rose, 2004. "Do We Really Know That the WTO Increases Trade?," American Economic Review, American Economic Association, vol. 94(1), pages 98-114, March.
    12. Laura E. Kodres & Matthew Pritsker, 2002. "A Rational Expectations Model of Financial Contagion," Journal of Finance, American Finance Association, vol. 57(2), pages 769-799, 04.
    13. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
    14. 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.
    15. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
    16. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-77, November.
    17. anonymous, 1998. "The Asian financial crisis: causes and lessons," Economics Update, Federal Reserve Bank of Atlanta, issue Jul, pages 5.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:bav:wpaper:034_koehler. 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: (Rebecca Schrader)

    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.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.