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Are Financial Crises Alike?

Listed author(s):
  • MArdi Dungey
  • Renee Fry
  • Brenda Gonzales-Hermosillo
  • Vance L. Martin
  • Chrismin Tang

This paper investigates whether financial crises are alike by considering whether a single modelling framework can fit multiple distinct crises in which contagion effects link markets across national borders and asset classes. The crises considered are Russia and LTCM in the second half of 1998, Brazil in early 1999, dot-com in 2000, Argentina in 2001-2005, and the recent U.S. subprime mortgage and credit crisis in 2007. Using daily stock and bond returns on emerging and developed markets from 1998 to 2007, the empirical results show that financial crises are indeed alike, as all linkages are statistically important across all crises. However, the strength of these linkages does vary across crises. Contagion channels are widespread during the Russian/LTCM crisis, are less important during subsequent crises until the subprime crisis, where again the transmission of contagion becomes rampant.

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File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2017-01/dungey_fry_gonzales_martin_tang_152008.pdf
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Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2008-15.

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Length: 58 pages
Date of creation: Jun 2008
Handle: RePEc:een:camaaa:2008-15
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