Strong Contagion with Weak Spillovers
Martin Ellison,
Liam Graham and
Jouko Vilmunen
No 4762, CEPR Discussion Papers from C.E.P.R. Discussion Papers
Abstract:
In this Paper, we develop a model which explains why events in one market may trigger similar events in other markets, even though at first sight the markets appear to be only weakly related. We allow for multiple equilibria and learning dynamics in each market, and show that a jump between equilibria in one market is contagious because it more than doubles the probability of a similar jump in another market. We claim that contagion is strong since equilibrium jumps become highly synchronized across markets. Spillovers are weak because the instantaneous spillover of events from one market to another is small. To illustrate our result, we demonstrate how a currency crisis may be contagious with only weak links between countries. Other examples where weak spillovers would create strong contagion are various models of monetary policy, imperfect competition and endogenous growth.
Keywords: Contagion; Escape dynamics; Learning; Spillovers (search for similar items in EconPapers)
JEL-codes: E50 F40 (search for similar items in EconPapers)
Date: 2004-11
New Economics Papers: this item is included in nep-mac
References: Add references at CitEc
Citations: View citations in EconPapers (1)
Downloads: (external link)
https://cepr.org/publications/DP4762 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
Related works:
Journal Article: Strong Contagion with Weak Spillovers (2006) 
Working Paper: Strong Contagion with Weak Spillovers (2005) 
Working Paper: Strong contagion with weak spillovers (2005) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:4762
Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP4762
Access Statistics for this paper
More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().