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A Primer on Financial Contagion

Author Info

  • Marcello Pericoli

    ()

    (Banca d'Italia)

  • Massimo Sbracia

    ()

    (Banca d'Italia)

Abstract

This paper presents a unified framework to highlight possible channels for the international transmission of financial shocks. We first review the different definitions and measures of contagion used in the literature. We then use a simple multi-country asset pricing model to cast the main elements of the current debate on contagion and provide a stylized account of how a crisis in one country can spread to the world economy. In particular, the model shows how crises can be transmitted across countries, without assuming market imperfections or DG KRF portfolio management rules. Finally, tracking our classification, we survey the results obtained in the empirical literature on contagion.

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File URL: http://www.bancaditalia.it/pubblicazioni/temi-discussione/2001/2001-0407/tema_407_01.pdf
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Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 407.

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Date of creation: Jun 2001
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Handle: RePEc:bdi:wptemi:td_407_01
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Web page: http://www.bancaditalia.it

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Keywords: contagion; financial crisis; contagion;

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Find related papers by JEL classification:
  • F30 - International Economics - - International Finance - - - General
  • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
  • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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  1. Jeanne, Olivier & Masson, Paul, 2000. "Currency crises, sunspots and Markov-switching regimes," Journal of International Economics, Elsevier, vol. 50(2), pages 327-350, April.
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