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Contagion and interdependence among Central European economies: the impact of common external shocks

  • Sébastien Wälti

    ()

    (IUHEI)

This paper is about contagion and interdependence among Central European economies. It investigates the extent to which country-specific shocks spread across these countries beyond the normal channels of interdependence, taking into account common external shocks. To model such shocks, we make use of market interest rates and more precise measures of the stance of U.S. monetary policy, the U.S. stock market and we control for the impact of the 1999 Brazilian crisis. The results show that common external shocks affect Central European economies to a significant extent. Moreover, the transmission mechanism of country-specific shocks changes in the face of abnormal high-volatility events. The existence of contagion and the effects of common external shocks have important implications for the candidate countries in the transition phase to the accession to EMU.

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File URL: http://repec.graduateinstitute.ch/pdfs/Working_papers/HEIWP02-2003.pdf
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Paper provided by Economics Section, The Graduate Institute of International Studies in its series IHEID Working Papers with number 02-2003.

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Length: 27
Date of creation: Jan 2003
Date of revision:
Handle: RePEc:gii:giihei:heiwp02-2003
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  1. Leonardo Leiderman & Carmen Reinhart & Guillermo Calvo, 1992. "Capital Inflows and Real Exchange Rate Appreciation in Latin America; The Role of External Factors," IMF Working Papers 92/62, International Monetary Fund.
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  7. Maurizio Michael Habib, 2002. "Financial contagion, interest rates and the role of the exchange rate as shock absorber in Central and Eastern Europe," International Finance 0209004, EconWPA.
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  9. Jeffrey A. Frankel & Sergio L. Schmukler & Luis Serven, 2002. "Global Transmission of Interest Rates: Monetary Independence and Currency Regime," NBER Working Papers 8828, National Bureau of Economic Research, Inc.
  10. Favero, Carlo A. & Giavazzi, Francesco, 2002. "Is the international propagation of financial shocks non-linear?: Evidence from the ERM," Journal of International Economics, Elsevier, vol. 57(1), pages 231-246, June.
  11. Roberto Rigobon, 2001. "Contagion: How to Measure It?," NBER Working Papers 8118, National Bureau of Economic Research, Inc.
  12. Vivek B. Arora & Martin D. Cerisola, 2000. "How Does U.S. Monetary Policy Influence Economic Conditions in Emerging Markets?," IMF Working Papers 00/148, International Monetary Fund.
  13. John B. Carlson & Jean M. McIntire & James B. Thomson, 1995. "Federal funds futures as an indicator of future monetary policy: a primer," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 20-30.
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