Testing for Financial Contagion between Developed and Emerging Markets during the 1997 East Asian Crisis

Philip Arestis, Guglielmo Maria Caporale and Andrea Cipollini

Economics Working Paper Archive from Levy Economics Institute, The

Abstract: This paper examines whether, during the 1997 East Asian crisis, there was any contagion from the four largest economies in the region (Thailand, Indonesia, Korea, and Malaysia) to a number of developed countries (Japan, the United States, the United Kingdom, Germany, and France). Following Forbes and Rigobon (2002) and Rigobon (2003), we test for contagion as a positive significant shift in the degree of comovement between asset returns, taking into account heteroscedasticity and endogeneity bias. However, we improve on earlier empirical studies by taking the approach introduced by Caporale et al. (2002), and employ a full sample test of the stability of the system that relies on more plausible (over)identifying restrictions. The estimation results show that the impact of the East Asian crisis on developed financial markets was small (Japan being the only exception), while the drastic reduction in international lending to the region severely affected it.

New Economics Papers: this item is included in nep-fmk, nep-his, nep-ifn, nep-mac and nep-rmg
Date: 2003-01
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Related works:
Working Paper: TESTING FOR FINANCIAL CONTAGION BETWEEN DEVELOPED AND EMERGING MARKETS DURING THE 1997 EAST ASIAN CRISIS (2005)
Journal Article: Testing for financial contagion between developed and emerging markets during the 1997 East Asian crisis (2005)
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Persistent link: http://EconPapers.repec.org/RePEc:lev:wrkpap:370

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