Crisis Transmission: Evidence from the Debt, Tequila, and Asian Flu Crises

José De Gregorio and Rodrigo Valdés

The World Bank Economic Review, 2001, vol. 15, issue 2, 289--314

Abstract: This article analyzes how external crises spread across countries. The authors analyze the behavior of four alternative crisis indicators in a sample of 20 countries during three well-known crises: the 1982 debt crisis, the 1994 Mexican crisis, and the 1997 Asian crisis. The objective is twofold: to revisit the transmission channels of crises, and to analyze whether capital controls, exchange rate flexibility, and debt maturity structure affect the extent of contagion. The results indicate that there is a strong neighborhood effect. Trade links and similarity in precrisis growth also explain (to a lesser extent) which countries suffer more contagion. Both debt composition and exchange rate flexibility to some extent limit contagion, whereas capital controls do not appear to curb it.

Date: 2001
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