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Measuring Contagion with a Bayesian Time-Varying Coefficient Model

  • Alessandro Rebucci
  • Matteo Ciccarelli

We propose using a Bayesian time-varying coefficient model estimated with Markov chain-Monte Carlo methods to measure contagion empirically. The proposed measure works in the joint presence of heteroskedasticity and omitted variables and does not require knowledge of the timing of the crisis. It distinguishes contagion not only from interdependence but also from structural breaks and can be used to investigate positive as well as negative contagion. The proposed measure appears to work well using both simulated and actual data.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/171.

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Length: 32
Date of creation: 01 Sep 2003
Date of revision:
Handle: RePEc:imf:imfwpa:03/171
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  1. Matteo Ciccarelli & Alessandro Rebucci, 2002. "The Transmission Mechanism of European Monetary Policy; Is there Heterogeneity? Is+L2203 it Changing Over Time?," IMF Working Papers 02/54, International Monetary Fund.
  2. Roberto Rigobon, 2001. "Contagion: How to Measure It?," NBER Working Papers 8118, National Bureau of Economic Research, Inc.
  3. Timothy Cogley & Thomas Sargent, . "Drifts and Volatilities: Monetary Policies and Outcomes in the Post WWII US," Working Papers 2133503, Department of Economics, W. P. Carey School of Business, Arizona State University.
  4. Corsetti, Giancarlo & Pericoli, Marcello & Sbracia, Massimo, 2002. "Some Contagion, Some Interdependence: More Pitfalls in Tests of Financial Contagion," CEPR Discussion Papers 3310, C.E.P.R. Discussion Papers.
  5. Toni Gravelle & Maral Kichian & James Morley, 2003. "Shift Contagion in Asset Markets," Working Papers 03-5, Bank of Canada.
  6. Taimur Baig & Ilan Goldfajn, 2000. "The Russian Default and the Contagion to Brazil," IMF Working Papers 00/160, International Monetary Fund.
  7. Canova, Fabio & Ciccarelli, Matteo, 2001. "Forecasting and Turning Point Predictions in a Bayesian Panel VAR Model," CEPR Discussion Papers 2961, C.E.P.R. Discussion Papers.
  8. Manmohan S. Kumar & Avinash Persaud, 2001. "Pure Contagion and Investors Shifting Risk Appetite; Analytical Issues and Empirical Evidence," IMF Working Papers 01/134, International Monetary Fund.
  9. Kristin Forbes & Roberto Rigobon, 2000. "Contagion in Latin America: Definitions, Measurement, and Policy Implications," NBER Working Papers 7885, National Bureau of Economic Research, Inc.
  10. Chib, Siddhartha & Greenberg, Edward, 1995. "Hierarchical analysis of SUR models with extensions to correlated serial errors and time-varying parameter models," Journal of Econometrics, Elsevier, vol. 68(2), pages 339-360, August.
  11. Mervyn A. King & Sushil Wadhwani, 1989. "Transmission of Volatility Between Stock Markets," NBER Working Papers 2910, National Bureau of Economic Research, Inc.
  12. Matteo Ciccarelli & Alessandro Rebucci, 2001. "The Transmission Mechanism of European Monetary Policy: Is There Heterogeneity? Is It Changing Over Time?," Banco de Espa�a Working Papers 0115, Banco de Espa�a.
  13. Marcello Pericoli & Massimo Sbracia, 2001. "A Primer on Financial Contagion," Temi di discussione (Economic working papers) 407, Bank of Italy, Economic Research and International Relations Area.
  14. 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.
  15. Canova, Fabio, 1993. "Modelling and forecasting exchange rates with a Bayesian time-varying coefficient model," Journal of Economic Dynamics and Control, Elsevier, vol. 17(1-2), pages 233-261.
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