Ebook: International Financial Contagion

No sooner had the Asian crisis broken out in 1997 than the witch-hunt started. With great indignation every Asian economy pointed fingers. They were innocent bystanders. The fundamental reason for the crisis was this or that - most prominently contagion - but also the decline in exports of the new commodities (high-tech goods), the steep rise of the dollar, speculators, etc. The prominent question, of course, is whether contagion could really have been the key factor and, if so, what are the channels and mechanisms through which it operated in such a powerful manner. The question is obvious because until 1997, Asia's economies were generally believed to be immensely successful, stable and well managed. This question is of great importance not only in understanding just what happened, but also in shaping policies. In a world of pure contagion, i.e. when innocent bystanders are caught up and trampled by events not of their making and when consequences go far beyond ordinary international shocks, countries will need to look for better protective policies in the future. In such a world, the international financial system will need to change in order to offer better preventive and reactive policy measures to help avoid, or at least contain, financial crises.

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Within less than two years, a currency crisis that began in Thailand had spread throughout East Asia, Russia, and Brazil, affecting developed economies as well as emerging markets around the world. The scope and virulence of this international financial contagion was completely unexpected. In an attempt to better understand these events, a group of leading economists from international institutions, academic universities, and the private sector gathered at a conference sponsored by the International Monetary Fund, World Bank, and Asian Development Bank. This book presents a selection of the papers given at this conference.
This is the most extensive collection to date of research on international financial contagion. It includes survey articles and policy discussions, as well as detailed theoretical models and empirical analyses. Topics range from how to define contagion, to the relative importance of real versus financial linkages, to what policies could reduce contagion in the future. Many of the chapters perform empirical tests attempting to explain why crises spread, either by focusing on a specific transmission channel or an individual country or region. The chapters in this book have made impressive strides toward better understanding the causes and channels of international financial contagion.

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Within less than two years, a currency crisis that began in Thailand had spread throughout East Asia, Russia, and Brazil, affecting developed economies as well as emerging markets around the world. The scope and virulence of this international financial contagion was completely unexpected. In an attempt to better understand these events, a group of leading economists from international institutions, academic universities, and the private sector gathered at a conference sponsored by the International Monetary Fund, World Bank, and Asian Development Bank. This book presents a selection of the papers given at this conference.
This is the most extensive collection to date of research on international financial contagion. It includes survey articles and policy discussions, as well as detailed theoretical models and empirical analyses. Topics range from how to define contagion, to the relative importance of real versus financial linkages, to what policies could reduce contagion in the future. Many of the chapters perform empirical tests attempting to explain why crises spread, either by focusing on a specific transmission channel or an individual country or region. The chapters in this book have made impressive strides toward better understanding the causes and channels of international financial contagion.
Content:
Front Matter....Pages i-xi
Front Matter....Pages 1-1
International Financial Contagion: An Overview of the Issues and the Book ....Pages 3-17
Contagion: Why Crises Spread and How This Can Be Stopped ....Pages 19-41
Measuring Contagion: Conceptual and Empirical Issues ....Pages 43-66
The Channels for Financial Contagion....Pages 67-95
Front Matter....Pages 97-97
Crisis Transmission: Evidence from the Debt, Tequila, and Asian Flu Crises ....Pages 99-127
Flight to Quality: Investor Risk Tolerance and the Spread of Emerging Market Crises ....Pages 129-155
Mutual Fund Investment in Emerging Markets: An Overview ....Pages 157-185
Portfolio Diversification, Leverage, and Financial Contagion....Pages 187-221
Front Matter....Pages 223-223
Thai Meltdown and Transmission of Recession within the ASEAN4 and NIE4....Pages 225-240
Financial Contagion in the East Asian Crisis: With Special Reference to the Republic of Korea ....Pages 241-265
The Russian Default and the Contagion to Brazil....Pages 267-299
Contagion of International Financial Crises: The Case of Mexico ....Pages 301-328
Financial Market Spillovers: How Different are the Transition Economies? ....Pages 329-366
Are Financial Crises Becoming More Contagious?: What is the Historical Evidence on Contagion? ....Pages 367-403
Front Matter....Pages 405-405
International Contagion: Implications for Policy ....Pages 407-430
International Financial Reform: Regulatory And Other Issues ....Pages 431-460
Back Matter....Pages 461-466

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Within less than two years, a currency crisis that began in Thailand had spread throughout East Asia, Russia, and Brazil, affecting developed economies as well as emerging markets around the world. The scope and virulence of this international financial contagion was completely unexpected. In an attempt to better understand these events, a group of leading economists from international institutions, academic universities, and the private sector gathered at a conference sponsored by the International Monetary Fund, World Bank, and Asian Development Bank. This book presents a selection of the papers given at this conference.
This is the most extensive collection to date of research on international financial contagion. It includes survey articles and policy discussions, as well as detailed theoretical models and empirical analyses. Topics range from how to define contagion, to the relative importance of real versus financial linkages, to what policies could reduce contagion in the future. Many of the chapters perform empirical tests attempting to explain why crises spread, either by focusing on a specific transmission channel or an individual country or region. The chapters in this book have made impressive strides toward better understanding the causes and channels of international financial contagion.
Content:
Front Matter....Pages i-xi
Front Matter....Pages 1-1
International Financial Contagion: An Overview of the Issues and the Book ....Pages 3-17
Contagion: Why Crises Spread and How This Can Be Stopped ....Pages 19-41
Measuring Contagion: Conceptual and Empirical Issues ....Pages 43-66
The Channels for Financial Contagion....Pages 67-95
Front Matter....Pages 97-97
Crisis Transmission: Evidence from the Debt, Tequila, and Asian Flu Crises ....Pages 99-127
Flight to Quality: Investor Risk Tolerance and the Spread of Emerging Market Crises ....Pages 129-155
Mutual Fund Investment in Emerging Markets: An Overview ....Pages 157-185
Portfolio Diversification, Leverage, and Financial Contagion....Pages 187-221
Front Matter....Pages 223-223
Thai Meltdown and Transmission of Recession within the ASEAN4 and NIE4....Pages 225-240
Financial Contagion in the East Asian Crisis: With Special Reference to the Republic of Korea ....Pages 241-265
The Russian Default and the Contagion to Brazil....Pages 267-299
Contagion of International Financial Crises: The Case of Mexico ....Pages 301-328
Financial Market Spillovers: How Different are the Transition Economies? ....Pages 329-366
Are Financial Crises Becoming More Contagious?: What is the Historical Evidence on Contagion? ....Pages 367-403
Front Matter....Pages 405-405
International Contagion: Implications for Policy ....Pages 407-430
International Financial Reform: Regulatory And Other Issues ....Pages 431-460
Back Matter....Pages 461-466
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