Private financial institutions and market players can now contribute to financial stability by managing their businesses well and avoiding unnecessary risktaking. Eur 25287 en 2012 the role of contagion in financial crises. Through international finance analysis, researchers aim to explain the fiscal and monetary decisionmaking of a government and its effect on aggregate economic. Financial contagion happens at both the international level and the domestic level. He was involved in various research projects focused on the problem of crisis contagion, investors risk aversion, financial management, international financing etc. Contagion in international asset markets during the global. We assess the amount of contagion to mexicos financial markets using different statistical methods. Analysis of international contagion in emerging stock markets in terms of global financial crisis. The prominent question, of course, is whether contagion could really have been the key factor and, if so, what are the channels and mechanisms through which it operated in such a powerful manner. Rethinking financial contagion gabriele visentin, stefano battiston and marco derrico department of banking and finance university of zurich august 30, 2016 abstract how, and to what extent, does an interconnected nancial system endogenously amplify external shocks. International contagion through leveraged financial institutions eric van wincoop. Contagion is one of the most commonly referenced yet least understood notions in international finance.
Imf world economic outlook weo, international financial. Basic concepts in daily life, we nd ourselves in constant contact with internationally traded goods. In section 3, i contemplate the implications of financial contagion in more detail. International financial contagion in currency crises. Asset pricing program, economic fluctuations and growth program, international finance and macroeconomics program.
How, and to what extent, does an interconnected financial system endogenously amplify external shocks. Financial networks and contagion harvard university. Download international financial contagion pdf ebook. Contagion in international asset markets during the global financial crisis and eurozone debt crisis pami dua and divya tuteja1 department of economics, delhi school of economics, university of delhi abstract the paper examines existence of financial contagion between indian, eurozone. In the aftermath of the 1997 asian crisis and the 1998 russian debacle, investors saw contagion looming around every corner and began to question the benefits of international diversificationin particular, investment in emerging markets. How did a domestic housing slump turn into a global financial crisis. Institute for studies in social sciences and humanities c. Although originally written in 2003, the book remains relevant today. It helps explain an economic crisis extending across neighboring countries, or even regions.
The importance and role of international financial and. With regard to diversification, there are also tradeoffs, but on different dimensions. Crossborder financial linkages and international financial contagion an empirical study of east asia during the 20072011 global financial crisis by chau ho an le a thesis submitted to the university of birmingham for the degree of doctor of philosophy department of economics birmingham business school college of social sciences. Global financial crisis, financial contagion and emerging markets1 prepared by f. A prominent feature of the financial crises that have engulfed emerging market economies in recent yearsthe mexican crisis of 199495, the asian crisis of 1997, and the russian crisis of 1998was the spread of financial difficulties from one economy to others in the same region and beyond in a process that has come to be referred to as contagion.
Thus, a tradeoff emerges between the probability of crises and the severity of crises. Abstract how, and to what extent, does an interconnected financial system endogenously amplify external shocks. International finance discussion papers are preliminary materials circulated to stimulate. Through international finance analysis, researchers aim to explain the fiscal and monetary decisionmaking of a government and its effect on aggregate economic variables, including trade balance and exchange rates. An overview 29 states of the world, and the strong crosscountry linkages that exist after a crisis are not significantly different than those during more stable. The world economic outlook presents the imf staffs analysis and projections of economic developments at the global level, in major country groups classified by region, stage of development, etc.
Financial networks and contagion 3117 assets decreases as it becomes integrated. As financial stability is a global public good, governments and regulators also play a key role in it. Mar 24, 2017 in summary, financial crisis, contagion, and containment is thoughtprovoking for economic and financial practitioners who want to better understand financial crises and the imfs attendant policy responses. It is a generalization of an earlier version in manz 2002, which is, to my knowledge, the first unique equilibrium model of informationbased contagion. Balaji institute of international business, faculty of finance and business management. An overview of the issues and the book stijn claessens world bank kristin forbes massachusetts institute of technology and nber contagion. International financial integration and crisis contagion. A currency crisis in thailand quickly spread throughout east asia and then on to russia and brazil. International financial integration and crisis contagion michael b.
It may be tempting to think that in the economic system, since one agents asset is another agents liability, then, in the aggregate, assets and liabilities can be simply netted out. In this paper we study the contagion suffered by mexicos national markets during the crises in asia, russia and brazil, in the 19971999 period. Disease transmission by direct or indirect contact. Compared to existing studies, we include a much larger cross section of u. Chang and majnoni try to identify and evaluate the public policy implications of financial contagion on the basis of a very simple model of financial crises. Peyton young the recent financial crisis has prompted much new research on the interconnectedness of the modern financial system and the extent to which it contributes to systemic fragility.
With great indignation every asian economy pointed fingers. In summary, financial crisis, contagion, and containment is thoughtprovoking for economic and financial practitioners who want to better understand financial crises and the imfs attendant policy responses. List of books and articles about international finance. Financial contagion can be a potential risk for countries who are trying to integrate their financial system with international financial markets and institutions. The new international financial crisis revealed that in only a short period of time there was a public injection of financial resources in europe and the u. Crossborder financial linkages and international financial. Apr 06, 2020 the world economic outlook presents the imf staffs analysis and projections of economic developments at the global level, in major country groups classified by region, stage of development, etc. No sooner had the asian crisis broken out in 1997 than the witchhunt started. This paper attempts to reconcile some apparently di er. Jan 23, 2014 the likelihood and size of a financial crisis. International finance key terms flashcards quizlet.
We estimate the extent to which interconnections increase. She has written several articles in the areas of bank performance, bank regulation, corporate. International contagion through leveraged financial institutions. The fundamental reason for the crisis was this or that most prominently contagion but also the decline in exports of the new. European commission, joint research centre, scientific support to financial analysis, institute for the. The international financial system new york university. This paper attempts to reconcile some apparently different views emerged after the 2008 crisis regarding the nature and the relevance of contagion in financial networks. International financial contagion pdf,, download ebookee alternative excellent tips for a better ebook reading. The point of this discussion is to emphasize the multifaceted nature of the modern financial network and the variety of ways that it can generate contagion in practice. The fundamental reason for the crisis was this or that most prominently contagion but also the decline in exports of the new commodities hightech goods, the steep rise of the dollar, speculators, etc. This paper attempts a synthesis of theoretical and empirical work on international financial contagion.
International financial contagion stijn claessens springer. It is, of course, terribly important to analyze case histories to discover potential triggers, mechanisms of transmission, and viable ways to contain the damage of financial contagion. In this model, financial contagion can be driven by a combination of fundamentals and by selffulfilling market expectations. The question is obvious because until 1997, asias economies were generally believed to be immensely successful, stable and well managed. Before 1997, the term contagion usually referred to the spread of a medical disease. Financial and real assets sold to 3 foreigners capital inflows overall financial and real assets bought 2 balance from foreigners capital outflows2 governments financial assets sold 3 foreign exchange reserves reduced governments financial assets bought foreign exchange reserves increased errors and omissions 1. A lexisnexis search for contagion before this year finds hundreds of examples in major newspapers, almost none of which refer to turmoil in international financial markets. Filiz unsal authorized for distribution by catherine pattillo december 2012 abstract the recent global financial crisis was the first in recent history that was triggered by problems in the financial system of the mature economies. Following gai and kapadia 3, a financial crisis is defined as a situation in which at least 5% of banks go bankrupt. Analysis of international contagion in emerging stock markets. Although a professional consensus on the appropriate definitions of contagion has yet to emerge, we document substantial research progress towards this goal. Financial integration can raise or lower welfare, depending on the scale of macroeconomic risk. This article deals with a particular issue regarding the importance and role in.
International finance theory defines the open economy as one that is involved in international trade. International financial integration and crisis contagion by. Thus, although integration can increase the likelihood of a cascade once an initial failure occurs, it can also decrease the likelihood of that first failure. Searching for international contagion in the 2008 financial. We then study possible channels of contagion to the mexican economy and discuss how. The viral threat to the wealth of nations covers a lot of territory. International financial contagion stijn claessens, kristin forbes on. Large financial institutions had increased their reliance on shortterm contagion in financial networks paul glasserman and h. International financial integration helps to diversify risk but also may increase the trans mission of crises across countries. A disease that is or may be transmitted by direct or indirect contact. He is author of more than 60 research papers published in romanian and foreign academic journals, most of them focused on the field of international finance. You may be wearing clothing made in china or eating fruit from chile. A rise in us interest rates adversely affects the funding of emerging market economies not only by increasing their debt servicing costs and.
We construct an empirical measure of expected network spillovers that arise through default cascades for the u. But is there clear evidence of such international contagion. The 2008 financial crisis is sometimes characterised as one where financial difficulties in the us spread to the rest of the world. Efficient immunization strategies to prevent financial contagion. Refers to the spread of market disturbances mostly on the downside from one country to the other, a process observed through comovements in exchange rates, stock prices, sovereign spreads, and capital flows.
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