Global Financial Crisis, Financial Contagion, and Emerging Markets

Author/Editor: F. Gulcin Ozkan ; D. Filiz Unsal
Publication Date: December 13, 2012
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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: The recent global financial crisis was the first in recent history that was triggered by problems in the financial system of the mature economies. Existing work on financial crisis in emerging market countries, however, almost exclusively focus on the role of financial frictions in the domestic economy. In contrast, we propose a two-country DSGE model to investigate the transmission of a global financial crisis that originates from financial frictions in the rest of the world. We find that the scale of financial spillovers from the global to the domestic economy and trade openness are key determinants of the severity of the financial crisis for the domestic economy. Our results also suggest that the welfare ranking of alternative monetary policy regimes is determined by the degree of financial contagion, the degree of trade openness as well as the scale of foreign currency denominated debt in the domestic economy.
Series: Working Paper No. 12/293
Subject(s): Global Financial Crisis 2008-2009 | Emerging markets | Trade integration | Economic integration | External shocks | Spillovers | Economic models

Publication Date: December 13, 2012
ISBN/ISSN: 9781475551167/1018-5941 Format: Paper
Stock No: WPIEA2012293 Pages: 58
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