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A Primer on Financial Contagion

  • Marcello Pericoli


    (Banca d'Italia)

  • Massimo Sbracia


    (Banca d'Italia)

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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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
Date of revision:
Handle: RePEc:bdi:wptemi:td_407_01
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