Extreme Interdependence and Extreme Contagion between Emerging Markets

Giorgio Fazio

Research output: Working paperDiscussion paper

Abstract

This paper presents a methodology to identify contagion between exchange market pressure events in different countries, based on a set of seemingly unrelated probit equations. This technique allows us to separate the transmission due to broadly defined macroeconomic interdependence, and contagion due to herding, avoiding some of the caveats of the more traditional cross-correlation approach. We find evidence of pure contagion only for a limited number of country pairs which, with few notable exceptions, belong to the same region. In some instances, a reduction in speculative pressure can be identified between countries located in different regions. This evidence seems to suggests that the spreading of crises can be triggered by sudden shifts in investors expectations after an initial crisis episode and that investors tend to discriminate on the basis of location and common macroeconomic weakness or perceived similarity.
LanguageEnglish
Place of PublicationGlasgow
PublisherUniversity of Strathclyde
Pages1-47
Number of pages50
Volume04
Publication statusPublished - Jun 2004

Fingerprint

Emerging markets
Contagion
Interdependence
Macroeconomics
Investors
Cross-correlation
Herding
Exchange market pressure
Probit
Methodology

Keywords

  • currency crisis
  • contagion
  • seemingly unrelated bivariate probit

Cite this

Fazio, G. (2004). Extreme Interdependence and Extreme Contagion between Emerging Markets. (10 ed.) (pp. 1-47). Glasgow: University of Strathclyde.
Fazio, Giorgio. / Extreme Interdependence and Extreme Contagion between Emerging Markets. 10. ed. Glasgow : University of Strathclyde, 2004. pp. 1-47
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Fazio, G 2004 'Extreme Interdependence and Extreme Contagion between Emerging Markets' 10 edn, University of Strathclyde, Glasgow, pp. 1-47.

Extreme Interdependence and Extreme Contagion between Emerging Markets. / Fazio, Giorgio.

10. ed. Glasgow : University of Strathclyde, 2004. p. 1-47.

Research output: Working paperDiscussion paper

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Fazio G. Extreme Interdependence and Extreme Contagion between Emerging Markets. 10 ed. Glasgow: University of Strathclyde. 2004 Jun, p. 1-47.