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Regional Vulnerability : The Case of East Asia


  • Mody, Ashoka

    (International Monetary Fund)

  • Taylor, Mark P.

    (University of Warwick and Centre for Economic Policy Research)


In a case study of six East Asian economies, we use dynamic factor analysis to estimate a regional component of the exchange market pressure index (EMPI) as a measure of regional financial stress. The extent to which this indicator is explained by regional economic and financial factors is interpreted as regional vulnerability to crisis. We find that regional external liabilities and exuberance in domestic stock and credit markets, as well as the US high yield spread, were positively correlated with regional vulnerability. Individual country EMPIs are also explained by regional factors, with country-specific factors and trade linkages playing little role.

Suggested Citation

  • Mody, Ashoka & Taylor, Mark P., 2006. "Regional Vulnerability : The Case of East Asia," The Warwick Economics Research Paper Series (TWERPS) 776, University of Warwick, Department of Economics.
  • Handle: RePEc:wrk:warwec:776

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    Cited by:

    1. Klaassen, Franc & Jager, Henk, 2011. "Definition-consistent measurement of exchange market pressure," Journal of International Money and Finance, Elsevier, vol. 30(1), pages 74-95, February.
    2. Gabriele Fiorentini & Alessandro Galesi & Enrique Sentana, 2014. "A Spectral EM Algorithm for Dynamic Factor Models," Working Papers wp2014_1411, CEMFI.
    3. Alina Carare & Ashoka Mody, 2012. "Spillovers of Domestic Shocks: Will They Counteract the ‘Great Moderation’?," International Finance, Wiley Blackwell, vol. 15(1), pages 69-97, April.
    4. Ping Wang & Tomoe Moore, 2014. "The determinants of vulnerability to currency crises: country-specific factors versus regional factors," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 41(4), pages 619-640, November.
    5. Wajih Khallouli & Mahmoud Sami Nabi, 2010. "Financial Crises’ Prevention and Recovery," Working Papers 529, Economic Research Forum, revised 06 Jan 2010.
    6. Gabriele Fiorentini & Enrique Sentana, 2013. "Dynamic Specification Tests for Dynamic Factor Models," Working Papers wp2013_1306, CEMFI.
    7. Jie Li & Alice Ouyang, 2011. "Currency crises: can high reserves offset vulnerable fundamentals?," Applied Economics, Taylor & Francis Journals, vol. 43(16), pages 2055-2069.
    8. Fedorova, Ye. & Lukasevich, I., 2012. "Index of Exchange Market Pressure (EMP): Specifics of Emerging Markets," Journal of the New Economic Association, New Economic Association, vol. 14(2), pages 51-66.
    9. Baur, Dirk G. & Fry, Renée A., 2009. "Multivariate contagion and interdependence," Journal of Asian Economics, Elsevier, vol. 20(4), pages 353-366, September.

    More about this item


    currency crisis ; contagion ; vulnerability ; dynamic factor analysis;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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