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Vulnerability to purely contagious balance of payment crises in emerging economies: An application to the cases of Russia, Turkey, and Brazil

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  • Akçay, Cevdet
  • Zenginobuz, Unal

Abstract

We explore the possible role of interdependence of expectations in emerging market economies and analyze the crisis transmission mechanism within the ”pure”contagion framework. We consider the cases of Russia, Turkey, and Brazil, and assess whether the fundamentals of these countries allowed for the possibility of ”pure”contagion e¤ects from each other. In particular, we look at Russia - Turkey and Brazil - Russia pairs in year 1997 to see whether Brazilian and the Turkish economies exhibited vulnarability to pure contagion before the 1998 Russian crisis We also repeat the same exercise with the most recent 1999 data. The rationale for choosing these pairings is the huge volume of (luggage) trade between geographical neighbors Russia and Turkey, and the similar export structures of Russia and Brazil (predominantly raw materials) which are continents apart. Our results clearly indicate vulnerability of Brazilian and Turkish economies to high probability of crisis in Russia even in the face of improving fundamentals. In isolation, Brazilian and Turkish fundamentals were not weak enough to place them in a sure-crisis situation. With the incorporation of the Russian link, the multiple equilibria setting disappeared for both countries, rendering sure-crisis as the single equilibrium solution.

Suggested Citation

  • Akçay, Cevdet & Zenginobuz, Unal, 2000. "Vulnerability to purely contagious balance of payment crises in emerging economies: An application to the cases of Russia, Turkey, and Brazil," MPRA Paper 195, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:195
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    References listed on IDEAS

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    1. Hakan Berument & N. Nergiz Dincer, 2004. "Do Capital Flows Improve Macroeconomic Performance in Emerging Markets? : The Turkish Experience," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 40(4), pages 20-32, July.

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    JEL classification:

    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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