The Russian Default and the Contagion to Brazil

Taimur Baig and Ilan Goldfajn

No 2000/160, IMF Working Papers from International Monetary Fund

Abstract: This paper investigates the contagion from Russia to Brazil in late 1998 under two dimensions— players involved and the timing of events. The data does not seem to reflect a compensatory liquidation of assets story by international institutional investors. It does contribute, however, to the suspicion that the contagion was triggered by foreign investors panicking from the Russian crisis, and joining local residents on their speculation against the Brazilian real. Adjusted correlations in the Brady market increase significantly during the crisis, which lends support to the view that if there was a contagion from Russia to Brazil, the most likely place of the transmission was the off-shore Brady market. Finally, the paper does not support the hypothesis that it was the liquidity crisis in mature markets, and not the Russian crisis, that timed the crisis in Brazil.

Keywords: WP; Brazil; Russia; market; Contagion; Exchange Rate; Off-shore Markets; stock index; U.S. dollar; Brazil regression; central bank of Brazil; Brady bond market; market investor; Stock markets; Capital flows; Currency markets; Emerging and frontier financial markets; Asia and Pacific (search for similar items in EconPapers)
Pages: 48
Date: 2000-10-01
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Citations: View citations in EconPapers (62)

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