Strong contagion with weak spillovers
Martin Ellison (),
Liam Graham and
Jouko Vilmunen ()
No 30, Computing in Economics and Finance 2005 from Society for Computational Economics
In this paper, we develop a model which explains why events in one market may trigger similar events in other markets, even though at first sight the markets appear to be only weakly related. We allow for multiple equilibria and learning dynamics in each market, and show that a jump between equilibria in one market is contagious because it more than doubles the probability of a similar jump in another market. We claim that contagion is strong since equilibrium jumps become highly synchronised across markets. Spillovers are weak because the instantaneous spillover of events from one market to another is small. To illustrate our result, we demonstrate how a currency crisis may be contagious with only weak links between countries. Other examples where weak spillovers would create strong contagion are various models of monetary policy, imperfect competition and endogenous growth
Keywords: contagion; escape dynamics; learning; spillovers (search for similar items in EconPapers)
JEL-codes: E5 F4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
http://www2.warwick.ac.uk/fac/soc/economics/staff/faculty/ellison/wp/egv.pdf main text (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www2.warwick.ac.uk/fac/soc/economics/staff/faculty/ellison/wp/egv.pdf [301 Moved Permanently]--> https://www2.warwick.ac.uk/fac/soc/economics/staff/faculty/ellison/wp/egv.pdf [301 Moved Permanently]--> https://warwick.ac.uk/fac/soc/economics/staff/faculty/ellison/wp/egv.pdf [301 Moved Permanently]--> https://warwick.ac.uk/fac/soc/economics/staff/academic/ellison/wp/egv.pdf)
Journal Article: Strong Contagion with Weak Spillovers (2006)
Working Paper: Strong Contagion with Weak Spillovers (2005)
Working Paper: Strong Contagion with Weak Spillovers (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:sce:scecf5:30
Access Statistics for this paper
More papers in Computing in Economics and Finance 2005 from Society for Computational Economics Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F. Baum ().