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Theory and practice of contagion in monetary unions: Domino effects in EMU Mediterranean countries

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  • Canofari Paolo
  • Di Bartolomeo Giovanni
  • Piersanti Giovanni

Abstract

This paper analyzes strategic interactions and contagion effects in the peripheral countries of a monetary union. Using game theory and cost-benefit analysis, the paper determines the set of equilibrium solutions under which country-specific shocks are transmitted to other member countries giving rise to contagion. Numerical simulations, obtained by a simple calibration of the model on some key Mediterranean countries of the Euro Zone, show the probabilities of contagion from Greece, Spain and Italy. Copyright International Atlantic Economic Society 2014
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  • Canofari Paolo & Di Bartolomeo Giovanni & Piersanti Giovanni, 2014. "Theory and practice of contagion in monetary unions: Domino effects in EMU Mediterranean countries," wp.comunite 0109, Department of Communication, University of Teramo.
    • Handle: RePEc:ter:wpaper:0109
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    1. Paolo Canofari & Giovanni Di Bartolomeo & Giovanni Piersanti, 2015. "Strategic Interactions and Contagion Effects under Monetary Unions," The World Economy, Wiley Blackwell, vol. 38(10), pages 1618-1629, October.
    2. Canofari, Paolo & Di Bartolomeo, Giovanni, 2017. "Regime switches under policy uncertainty in monetary unions," European Journal of Political Economy, Elsevier, vol. 47(C), pages 124-132.
    3. Paolo Canofari & Giancarlo Marini & Giovanni Piersanti, 2014. "Measuring Currency Pressure and Contagion Risks in Countries under Monetary Unions: The Case of Euro," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 42(4), pages 455-469, December.

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    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G01 - Financial Economics - - General - - - Financial Crises

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