Testing for contagion in international financial markets: which way to go?

Sébastien Wälti ()
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Sébastien Wälti: IUHEI, http://www.tcd.ie/Economics/staff/waltis/
Authors registered in the RePEc Author Service: Sébastien Waelti

No 04-2003, IHEID Working Papers from Economics Section, The Graduate Institute of International Studies

Abstract: This paper tests for the existence of contagion during the 1997/98 Asian crisis. We interpret contagion as a significant change in the way that country-specific shocks are transmitted across international financial markets. Using the full-information framework of Favero and Giavazzi (2002) we find that the null hypothesis of no contagion is widely rejected. We also uncover evidence of an asymmetric transmission of shocks. Since our results contrast with those obtained by Rigobon (2001, 2002) using a limited-information methodology we present Monte Carlo simulations which show that certain necessary conditions must be satisfied for this method to have power. For parameter values in line with our econometric estimations we conclude that the power of the limited-information approach remains relatively low.

Keywords: Contagion; Nonlinearities; International financial markets; Asian crisis; Simultaneous equations models (search for similar items in EconPapers)
Pages: 37
Date: 2003-08
New Economics Papers: this item is included in nep-fmk and nep-ifn
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Citations: View citations in EconPapers (2)

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Working Paper: Testing for Contagion in International Financial Markets: Which Way to Go? (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:gii:giihei:heiwp04-2003

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