Exposure to international crises: trade vs. financial contagion
Everett Grant
No 280, Globalization Institute Working Papers from Federal Reserve Bank of Dallas
Abstract:
I identify new patterns in countries' economic performance over the 2007-2014 period based on proximity through distance, trade, and finance to the US subprime mortgage and Eurozone debt crisis areas. To understand the causes of the cross-country variation, I develop an open economy model with two transmission channels that can be shocked separately: international trade and finance. The model is the first to include a government and heterogeneous firms that can default independently of one another and has a novel endogenous cost of sovereign default. I calibrate the model to the average experiences of countries near to and far from the crisis areas. Using these calibrations, disturbances on the order of those observed during the late 2000s are separately applied to each channel to study transmission. The results suggest credit disruption as the primary contagion driver, rather than the trade channel. Given the substantial degree of financial contagion, I run a series of counterfactuals studying the efficacy of capital controls and find that they would be a useful tool for preventing similarly severe contagion in the future, so long as there is not capital immobility to the degree that the local sovereign can default without suffering capital flight.
JEL-codes: E32 F40 F41 F44 H63 (search for similar items in EconPapers)
Pages: 65 pages
Date: 2016-08-01
New Economics Papers: this item is included in nep-fdg, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)
Downloads: (external link)
https://www.dallasfed.org/-/media/documents/resear ... papers/2016/0280.pdf Full text (application/pdf)
Related works:
Working Paper: Exposure to international crises: trade vs. financial contagion (2016) 
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:fip:feddgw:280
DOI: 10.24149/gwp280
Access Statistics for this paper
More papers in Globalization Institute Working Papers from Federal Reserve Bank of Dallas Contact information at EDIRC.
Bibliographic data for series maintained by Amy Chapman ().