EconPapers    
Economics at your fingertips  
 

A Wake-Up-Call Theory of Contagion

Toni Ahnert () and Christoph Bertsch ()

Staff Working Papers from Bank of Canada

Abstract: We propose a novel theory of financial contagion. We study global coordination games of regime change in two regions with an initially uncertain correlation of regional fundamentals. A crisis in region 1 is a wake-up call to investors in region 2 that induces a reassessment of local fundamentals. Contagion after a wake-up call can occur even if investors learn that fundamentals are uncorrelated and common lender effects or balancesheet linkages are absent. Applicable to currency attacks, bank runs and debt crises, our theory of contagion is supported by existing evidence and generates a new testable implication for empirical work.

Keywords: Exchange rates; Financial stability; International financial markets (search for similar items in EconPapers)
JEL-codes: D82 F3 G01 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-opm
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

Downloads: (external link)
https://www.bankofcanada.ca/wp-content/uploads/2015/04/wp2015-14.pdf

Related works:
Working Paper: A wake-up call: information contagion and strategic uncertainty (2014) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:15-14

Access Statistics for this paper

More papers in Staff Working Papers from Bank of Canada 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2019-04-19
Handle: RePEc:bca:bocawp:15-14