Measuring Contagion with a Bayesian Time-Varying Coefficient Model

Author/Editor:

Alessandro Rebucci ; Matteo Ciccarelli

Publication Date:

September 1, 2003

Electronic Access:

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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:

We propose using a Bayesian time-varying coefficient model estimated with Markov chain-Monte Carlo methods to measure contagion empirically. The proposed measure works in the joint presence of heteroskedasticity and omitted variables and does not require knowledge of the timing of the crisis. It distinguishes contagion not only from interdependence but also from structural breaks and can be used to investigate positive as well as negative contagion. The proposed measure appears to work well using both simulated and actual data.

Series:

Working Paper No. 03/171

Subject:

English

Publication Date:

September 1, 2003

ISBN/ISSN:

9781451858525/1018-5941

Stock No:

WPIEA1712003

Format:

Paper

Pages:

32

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