What Drives Contagion? Trade, Neighborhood and Financial Links
نویسندگان
چکیده
This paper evaluates the relative importance of three contagion channels: direct trade, neighborhood effects and financial competition in banking centers. Because these channels are highly correlated, they could easily be confused. However, policy implications are very different depending on the channel and therefore disentangle which channels are more relevant is an important task. This paper intents to do so analyzing the cross-country correlation of weekly sovereign bond spreads and stock market returns during the Thai, the Russian, and the Brazilian crises. The main finding is that that competition in financial markets appears as the most important contagion channel. When we measure contagion using changes in sovereign bond spreads, trade links do not appear to be important. When we measure contagion using stock market returns, all three channels appear to matter during the Thai and Brazilian crises, but only financial competition appears to matter during the Russian crisis. JEL Classification: F30, F32.
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