Discriminating Contagion: An Alternative Explanation of Contagious Currency Crises in Emerging Markets

February 1, 2000

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Format: Chicago

Pavan Ahluwalia. Discriminating Contagion: An Alternative Explanation of Contagious Currency Crises in Emerging Markets, (USA: International Monetary Fund, 2000) accessed November 6, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper shows that a country’s vulnerability to contagious crises depends on the visible similarities between that country and other countries that are experiencing crises. A country is vulnerable to shifts in investor sentiment if it exhibits weaknesses in the same economic variables as other countries affected by a contagious crisis (particularly the country that started the contagious wave), or if it is located in the same region. The paper uses a sample of 19 emerging markets, and data from the Mexican, Asian, and Russian crises to provide evidence of this discriminating contagion, after controlling for alternative channels of contagion such as trade spillovers and financial linkages.

Subject: Currencies, Currency crises, Emerging and frontier financial markets, Financial crises, Financial markets, Foreign exchange, Money, Real exchange rates

Keywords: Africa, Balance-of-payments, Contagion, Contagion indicator variable, Contagion variable, Currencies, Currency crises, Currency crisis, Current account, Discriminating contagion effect, East Asia, Emerging and frontier financial markets, Exchange rate, Income effect, Macroeconomic variable, Real exchange rates, Speculative, Variable CT, WP

Publication Details

Pages:

38
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2000/014
Stock No:

WPIEA0142000
ISBN:

9781451843118
ISSN:

1018-5941

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