Global Financial Crisis, Financial Contagion, and Emerging Markets

December 13, 2012

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Format: Chicago

Gülçin Özkan, and Filiz D Unsal. Global Financial Crisis, Financial Contagion, and Emerging Markets, (USA: International Monetary Fund, 2012) accessed September 19, 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

The recent global financial crisis was the first in recent history that was triggered by problems in the financial system of the mature economies. Existing work on financial crisis in emerging market countries, however, almost exclusively focus on the role of financial frictions in the domestic economy. In contrast, we propose a two-country DSGE model to investigate the transmission of a global financial crisis that originates from financial frictions in the rest of the world. We find that the scale of financial spillovers from the global to the domestic economy and trade openness are key determinants of the severity of the financial crisis for the domestic economy. Our results also suggest that the welfare ranking of alternative monetary policy regimes is determined by the degree of financial contagion, the degree of trade openness as well as the scale of foreign currency denominated debt in the domestic economy.

Subject: Conventional peg, Exchange rate arrangements, Financial contagion, Financial crises, Financial sector policy and analysis, Foreign exchange, Labor, Self-employment

Keywords: Business cycle, Conventional peg, Current account, Domestic economy, Economic activity, Emerging markets, Exchange rate, Exchange rate arrangements, Financial contagion, Financial crisis, Foreign currency, Foreign economy, Global, Home economy variable, Interest rate, Monetary policy, Self-employment, Sudden stops, WP

Publication Details

Pages:

58
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/293
Stock No:

WPIEA2012293
ISBN:

9781475551167
ISSN:

1018-5941

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