Discriminating Contagion: An Alternative Explanation of Contagious Currency Crises in Emerging Markets

Author/Editor:

Pavan Ahluwalia

Publication Date:

February 1, 2000

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:

This paper shows that a country’s vulnerability to contagious crises depends on the visible similarities between that country and other countries that are experiencing crises. A country is vulnerable to shifts in investor sentiment if it exhibits weaknesses in the same economic variables as other countries affected by a contagious crisis (particularly the country that started the contagious wave), or if it is located in the same region. The paper uses a sample of 19 emerging markets, and data from the Mexican, Asian, and Russian crises to provide evidence of this discriminating contagion, after controlling for alternative channels of contagion such as trade spillovers and financial linkages.

Series:

Working Paper No. 2000/014

Subject:

Currencies Currency crises Emerging and frontier financial markets Financial crises Financial markets Foreign exchange Money Real exchange rates

English

Publication Date:

February 1, 2000

ISBN/ISSN:

9781451843118/1018-5941

Stock No:

WPIEA0142000

Pages:

38

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