Contagion in Latin America: Definitions, Measurement, and Policy Implications

Kristin Forbes and Roberto Rigobon

No 7885, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper analyzes bond and stock markets in Latin America and uses these patterns to investigate whether contagion occurred in the 1990's. It defines shift-contagion' as a significant increase in cross-market linkages after a shock to one country or region. Several coin-toss examples and a simple model show that the standard tests for contagion are biased due to the presence of heteroscedasticity, endogeneity, and omitted-variable bias. Recent empirical work which addresses these problems finds little evidence of shift-contagion during a range of crisis periods. Instead, this work argues that many countries are highly interdependent' in all states of the world and the strong cross-country linkages which exist after a crisis are not significantly different than those during more stable periods. These findings have a number of implications for Latin America.

JEL-codes: F30 F40 (search for similar items in EconPapers)
Date: 2000-09
Note: IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (50)

Published as Roberto Rigobón & Kristin Forbes, 2001. "Contagion in Latin America: Definitions, Measurement, and Policy Implications," ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, January.

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Journal Article: Contagion in Latin America: Definitions, Measurement, and Policy Implications (2001)
Working Paper: Contagion in Latin America: definitions, measurement, and policy implications (2001)
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