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Two Hundred Years of Contagion

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  • Reinhart, Carmen
  • Kaminsky, Graciela
  • Vegh, Carlos

Abstract

Over the past two hundred years -- some would argue even longer -- financial events, such as the devaluation of a currency or an announcement of default, have been capable of triggering an immediate adverse chain reaction among countries within a region and in some cases across regions. The impact of these shocks on the countries unfortunate enough to be affected usually included sharp declines in equity prices, a spike in the cost of borrowing in international capital markets, and a significant drop in the availability of capital. In more extreme cases, countries have lost access to cross-border capital flows. Significant declines in output have been the norm in these episodes. Yet, it is remarkable that on other occasions similar events have failed to trigger any international reaction, at least on impact. In some instances, financial markets appear to be quite willing to shrug off an event that will obviously have strong trade and real sector repercussions on the crisis country’s neighbors. We explore what leads some crises to be contagious and others not

Suggested Citation

  • Reinhart, Carmen & Kaminsky, Graciela & Vegh, Carlos, 2002. "Two Hundred Years of Contagion," MPRA Paper 13229, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:13229
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    References listed on IDEAS

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    More about this item

    Keywords

    financial contagion crisis history trade banks lending;

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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