Analyse the techniques and assumptions used by the authors to investigate the importance of financial weaknesses and linkages in the three crises described. On the basis of the evidence presented, how...

JournalofInternationalMoneyandFinance 23(2004)51–70 www.elsevier.com/locate/econbase International?nancialcontagionincurrency crises
FrancescoCaramazza,LucaRicci ,RanilSalgado InternationalMonetaryFund,Washington,DC20431,USA Abstract Thispaperexaminestheroleof?nanciallinkages,especiallythroughacommoncreditor, inthepropagationof emerging marketcrises during the1990s. Using panel probitregres- sions on 41 emerging market countries, it ?nds that ?nancial linkages played a signi?cant role in the spread of the Mexican, Asian, and Russian crises. The signi?cance of ?nancial linkagesemergesaftercontrollingfortheroleofdomesticandexternalfundamentals,trade spillovers, and ?nancial weaknesses in the a?ected countries. A strong ?nancial linkage to the crisis country of origin not only substantially raises the probability of contagion, but alsohelpstoexplaintheobservedregionalconcentrationofcurrencycrises. #2003ElsevierLtd.Allrightsreserved. JELclassi?cation: F31;F32;F34;F41;G15 Keywords:Currencycrises;Emergingmarkets;Contagion;Tradeand?nancialspillovers 1. Introduction Aprominentfeatureofthe?nancialcrisesthathaveengulfedemergingmarket economiesinrecentyears—theMexicancrisisof1994–95,theAsiancrisisof1997, andtheRussiancrisisof1998—wasthespreadof?nancialdi?cultiesfromone economytoothersinthesameregionandbeyondinaprocessthathascometobe referred to as ‘‘contagion’’. Policymakers and researchers have increasingly won- deredaboutthenatureofthesecrises,thefactorsresponsiblefortheirspread,and, particularly,whetheracountrywithseeminglyappropriatedomesticandexternal fundamentalscanexperienceacrisisbecauseofcontagion.
Correspondingauthor.Tel.:+1-202-623-6007;fax:+1-202-623-6343. E-mailaddress:[email protected](L.Ricci). 0261-5606/$-seefrontmatter#2003ElsevierLtd.Allrightsreserved. doi:10.1016/j.jimon?n.2003.10.00152 F.Caramazzaetal./JournalofInternationalMoneyandFinance23(2004)51–70 This paper extends earlier work on indicators of currency crises by looking...