6533b7d0fe1ef96bd125b042

RESEARCH PRODUCT

Testing for financial contagion between developed and emerging markets during the 1997 East Asian crisis

Andrea CipolliniPhilip ArestisGuglielmo Maria CaporaleNicola Spagnolo

subject

EstimationEconomics and EconometricsHeteroscedasticityFinancial contagionContagionfinancial criseMonetary economicsmultivariate garchEmpirical researchcontagionconditional correlationAccountingEconomicsidentificationEast AsiaEndogeneityEmerging marketsDeveloped countrycontagion; multivariate garch; identificationFinance

description

In this paper we examine whether during the 1997 East Asian crisis there was any contagion from the four largest economies in the region (Thailand, Indonesia, Korea and Malaysia) to a number of developed countries (Japan, UK, Germany and France). Following Forbes and Rigobon, we test for contagion as a significant positive shift in the correlation between asset returns, taking into account heteroscedasticity and endogeneity bias. Furthermore, we improve on earlier empirical studies by carrying out a full sample test of the stability of the system that relies on more plausible (over) identifying restrictions. The estimation results provide some evidence of contagion, in particular from Japan (the main international lender in the region), which drastically cut its credit lines to the other Asian countries in 1997. Copyright © 2005 John Wiley & Sons, Ltd.

yearjournalcountryeditionlanguage
2005-01-01
10.1002/ijfe.284http://hdl.handle.net/10447/101711