Chapter

Contagion

Edited by Roberto Rigobon

in Preventing Currency Crises in Emerging Markets

Published by University of Chicago Press

Published in print November 2002 | ISBN: 9780226184944
Published online February 2013 | e-ISBN: 9780226185057 | DOI: http://dx.doi.org/10.7208/chicago/9780226185057.003.0007
Contagion

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This chapter describes the mechanisms through which currency crises are propagated across countries. It specifically addresses the question of how to measure contagion. It is clearly shown that the empirical question of the stability of parameters across countries faces tremendous econometric difficulties. The existence of unobservable shocks could alter the evaluation of the size and significance of contagion. The propagation of shocks across stock markets is (relatively) stable during the recent crises. An interesting comparison between the variance decompositions of bond and stock markets is that the relative importance of the common shocks in this data is significantly larger than in stock markets. It appears that exploring the statistical properties of the data with the adequate econometric techniques would be a very interesting project for further research.

Keywords: contagion; unobservable shocks; propagation; stock markets; bond; variance decompositions

Chapter.  26323 words.  Illustrated.

Subjects: International Economics

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