International Contagion Effects from the Russian Crisis and the LTCM Near-Collapse

IMF Working Papers, April 1, 2002

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International Contagion Effects from the Russian Crisis and the LTCM Near-Collapse

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Bibliographic details

• Authors: Renee Fry, Vance Martin, Brenda Gonzalez-Hermosillo, Mardi Dungey
• Published: April 1, 2002
• Series: IMF Working Papers

Summary

• Examination of the episode of extraordinary turbulence in global financial markets during 1998.
• Focus: market assessment of credit risk captured by daily movements in bond spreads for twelve countries.
• Objective: quantify the effects of unanticipated shocks across borders ("contagion"), controlling for common global shocks, country-specific shocks and regional factors.
• Main conclusion: there were substantial international contagion effects resulting from both the Russian and LTCM crises.
• Additional conclusion: the proportion of volatility explained by contagion is not necessarily larger in developing than in developed nations.

Methodology

• Data: daily movements in bond spreads for twelve countries (1998 episode).
• Model: a dynamic latent factor model.
• Estimation approach: indirect inference.
• Controls included: common global shocks, country-specific shocks, and regional factors.

Key Findings and Results

• Substantial international contagion effects originated from:
  • the Russian crisis, and
  • the LTCM near-collapse.
• The proportion of volatility explained by contagion is not necessarily larger in developing nations than in developed nations.

Subject Areas and Keywords

• Subject: Financial crises; Financial institutions; Financial markets; Financial services; International bonds; International capital markets; Securities markets; Yield curve.
• Keywords: a number of market; Asia and Pacific; asset class; contagion effect; contagion effects; developing market; Eastern Europe; financial crises; financial market crisis; Global; global bond; hedge fund Ltcm; International bonds; International capital markets; international spillovers; LTCM; LTCM crisis; market participant; rate of return; Russia; Securities markets; U.S volatility; wealth effect model; WP; Yield curve.

Content in this bundle

• International Contagon Effects from the Russian Crisis and the LTCM Near - Collapse - WP/02/74
  • International Contagon Effects from the Russian Crisis and the LTCM Near - Collapse - WP/02/74 (Markdown version)
  • International Contagon Effects from the Russian Crisis and the LTCM Near - Collapse - WP/02/74 (PDF)