Contagious Currency Crises

Abstract

Speculative attacks tend to be temporally correlated; that is, currency crises appear to pass "contagiously" from one country to another. The paper provides a survey of the theoretical literature and analyzes the contagious nature of currency crises empirically. Using thirty years of panel data from twenty industrialized countries, we find evidence of contagion. Contagion appears to spread more easily to countries which are closely tied by international trade linkages than to countries in similar macroeconomic circumstances.

Media sentiment and CDS spread spillovers: Evidence from the GIIPS countries

“…We use Diebold and Yilmaz (2012) total spillover index as the dependent providing the novel evidence on the impact of newswire messages on intensity of spillovers across CDS spreads. A third strand explores the role of trade and financial linkages across countries in the contagion of currency crises (e.g., Eichengreen et al, 1996;Van Rijckeghem and Weder, 2001;Albuquerque et al, 2011).…”

The Benefits and Risks of Financial Globalization

“…Eichengreen et al (1996), Glick and Rose (1999), and Forbes (2000) argue that trade links are important. Financial and nonfundamental links are also very important to understand contagion.…”

The role of Islamic asset classes in the diversified portfolios: Mean variance spanning test

“…Hence, due to the exclusion of financial sector, Islamic stocks are less sensitive to any external shock transmitted via financial integration. They absorb the least impact of excessive contagion in financial markets, which is transmitted from the U.S. via sentiment shift of investors, unrelated to fundamental linkages (Eichengreen et al, 1996;Forbes and Rigobon, 2002;Bae et al, 2003). In addition, the lower allocation on oil and gas sector results in less exposures of Islamic equities to the fluctuation in the global oil market driven by the U.S.-Iraq war, the global crisis in 2008, and Arab spring.…”