IMF Policy Discussion Papers

Vanishing Contagion?

Author/Editor:

Paolo Mauro ; Tatiana Didier ; Sergio L. Schmukler

Publication Date:

January 1, 2006

Electronic Access:

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Summary:

While a number of emerging market crises were characterized by widespread contagion during the 1990s, more recent crises (notably, in Argentina) have been mostly contained within national borders. This has led some observers to wonder whether contagion might have become a feature of the past, with markets now better discriminating between countries with good and bad fundamentals. This paper argues that a prudent working assumption is that contagion has not vanished permanently. Available data do not seem to point to a disappearance of the main channels that contribute to transmitting crises across countries. Moreover, anticipation of the Argentine crisis by international investors may help explain the recent absence of contagion.

Series:

Policy Discussion Paper No. 2006/001

Subject:

Emerging and frontier financial markets Financial crises Financial institutions Financial markets Hedge funds Mutual funds Stock markets