Sources of Contagion: Finance or Trade?

October 1, 1999

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

This paper presents evidence that spillovers through bank lending, as opposed to trade linkages and country characteristics, can help explain contagion. We construct a measure of competition for bank funds and find evidence in favor of a common lender effect in the Mexican, Thai, and Russian crises, after controlling for macroeconomic fundamentals. The results are quite robust to the definition of the finance indicator. In the case of the Asian crisis, results are not always robust to the inclusion of trade competition, reflecting the high correlation between competition for funds and trade.

Subject: Bank credit, Banking, Competition, Currency crises, Emerging and frontier financial markets, Financial crises, Financial markets, Money

Keywords: Asia and Pacific, bank, Bank credit, bank exposure, bank lender, Competition, Contagion, crisis, crisis country, Currency crises, currency crisis, Emerging and frontier financial markets, finance, financial spillovers, Global, lender, lender channel, lender effect, lending, WP

Pages:
28
Volume:
1999
DOI:
https://doi.org/10.5089/9781451856620.001
Issue:
146
Series:
Working Paper No. 1999/146
Stock No:
WPIEA1461999
ISBN:
9781451856620
ISSN:
1018-5941

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