Contagion: Monsoonal Effects, Spillovers, and Jumps Between Multiple Equilibria

September 1, 1998

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

Several concepts of contagion are distinguished. It is argued that only models that admit of multiple equilibria are capable of producing true contagion. A simple balance of payments model is presented to illustrate that phenomenon, and some back-of-the-envelope calculations assess its relevance to the coincidence of emerging market crises in 1994–95 and in 1997.

Subject: Currencies, Emerging and frontier financial markets, Exchange rates, External debt, Financial markets, Foreign exchange, International trade, Money, Trade balance

Keywords: contagion, Currencies, devaluation expectation, devaluation risk, dollar exchange rate peg, East Asia, Emerging and frontier financial markets, emerging-market country, exchange rate, Exchange rates, multiple equilibria, Southeast Asia, spillovers, Trade balance, U.S. dollar, WP

Pages:
32
Volume:
1998
DOI:
https://doi.org/10.5089/9781451856224.001
Issue:
142
Series:
Working Paper No. 1998/142
Stock No:
WPIEA1421998
ISBN:
9781451856224
ISSN:
1018-5941

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