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Financial Vulnerability, Spillover Effects, and Contagion

Author: Guillermo Perry

Publisher: World Bank Publications

Published: 1998-01-01

Total Pages: 84

ISBN-13: 9780821342282

There is already a large and growing literature about the financial crises affecting several former star economic performers in Asia. Some analysis have focused on the mismanagement of the structure of foreign debt and economic policies, while others have focused on weaknesses ingrained in the domestic financial and banking sectors of these economies. This paper attempts to reconcile these alternative explanations in a simple framework, where the causes and symptoms of "financial vulnerability" are distinguished.

Financial Contagion

Author: Rob Quail

Publisher: John Wiley & Sons

Published: 2011-02-09

Total Pages: 570

ISBN-13: 1118016521

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"Financial Contagion: The Viral Threat to the Wealth of Nations covers a lot of territory. It is, of course, terribly important to analyze case histories to discover potential triggers, mechanisms of transmission, and viable ways to contain the damage of financial contagion. The problem is, as these articles amply demonstrate, that there’s always a new virus or a mutation of a former one lurking in some corner of the financial world. We don’t know what it is or where it is. And, even if we had some inkling, there’s almost never enough time to develop a financial flu shot." --SeekingAlpha.com The latest insights on financial contagion and how both nations and investors can effectively deal with it. The domino-style structure in which the financial system exists is a perilous one. Although historically, the financial system has been able to deal with major shocks, the fact remains that our financial system is not as secure as it should be. Recent years have brought about too many examples of contagion and systemic risk. That is why Financial Contagion is such an important read. In it, the serious concerns that revolve around our fragile economic system are investigated, researched, and explained. Throughout the book, Kolb offers valuable insights on this dilemma as he compiles the history of financial contagion, highlights the latest research on systemic failure and interrelated markets, and analyzes the risks and consequences we face moving forward. Examines the importance of careful regulation and what must be done to stabilize the global financial system Includes contributed chapters from both academics and experienced professionals, offering a variety of perspectives and a rich interplay of ideas Details how close we are to witnessing a financial contagion that could devastate the world economy We have been harshly reminded of how fragile our economic ecosystem is. With Financial Contagion, you'll hold a better understanding of what needs to be done to strengthen our system and safeguard our financial future.

CoMap: Mapping Contagion in the Euro Area Banking Sector

Author: Mehmet Ziya Gorpe

Publisher: International Monetary Fund

Published: 2019-05-10

Total Pages: 63

ISBN-13: 1498312071

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This paper presents a novel approach to investigate and model the network of euro area banks’ large exposures within the global banking system. Drawing on a unique dataset, the paper documents the degree of interconnectedness and systemic risk of the euro area banking system based on bilateral linkages. We develop a Contagion Mapping model fully calibrated with bank-level data to study the contagion potential of an exogenous shock via credit and funding risks. We find that tipping points shifting the euro area banking system from a less vulnerable state to a highly vulnerable state are a non-linear function of the combination of network structures and bank-specific characteristics.

Transmission of Financial Crises and Contagion:

Author: Mardi Dungey

Publisher: Oxford University Press

Published: 2011-01-07

Total Pages: 228

ISBN-13: 9780199842605

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Financial crises often transmit across geographical borders and different asset classes. Modeling these interactions is empirically challenging, and many of the proposed methods give different results when applied to the same data sets. In this book the authors set out their work on a general framework for modeling the transmission of financial crises using latent factor models. They show how their framework encompasses a number of other empirical contagion models and why the results between the models differ. The book builds a framework which begins from considering contagion in the bond markets during 1997-1998 across a number of countries, and culminates in a model which encompasses multiple assets across multiple countries through over a decade of crisis events from East Asia in 1997-1998 to the sub prime crisis during 2008. Program code to support implementation of similar models is available.

Interconnectedness and Contagion Analysis: A Practical Framework

Author: Mrs.Jana Bricco

Publisher: International Monetary Fund

Published: 2019-10-11

Total Pages: 49

ISBN-13: 1513517856

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The analysis of interconnectedness and contagion is an important part of the financial stability and risk assessment of a country’s financial system. This paper offers detailed and practical guidance on how to conduct a comprehensive analysis of interconnectedness and contagion for a country’s financial system under various circumstances. We survey current approaches at the IMF for analyzing interconnectedness within the interbank, cross-sector and cross-border dimensions through an overview and examples of the data and methodologies used in the Financial Sector Assessment Program. Finally, this paper offers practical advice on how to interpret results and discusses potential financial stability policy recommendations that can be drawn from this type of in-depth analysis.

Contagion

Author: Mr.Paul R. Masson

Publisher: International Monetary Fund

Published: 1998-09-01

Total Pages: 33

ISBN-13: 1451856229

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Several concepts of contagion are distinguished. It is argued that only models that admit of multiple equilibria are capable of producing true contagion. A simple balance of payments model is presented to illustrate that phenomenon, and some back-of-the-envelope calculations assess its relevance to the coincidence of emerging market crises in 1994–95 and in 1997.

Contagion as a Dealmaker? The Effect of Financial Spillovers on Regional Lending Programs

Author: Alexandra Fotiou

Publisher: International Monetary Fund

Published: 2022-07-08

Total Pages: 59

ISBN-13:

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The recent European sovereign debt crisis highlighted the critical role of regional lending arrangements. For the first time, European mechanisms were called to design financing programmes for member countries in trouble. This paper analyses how the risk of contagion, an essential characteristic of interlinked economies, shapes borrowing conditions. We focus on the role of spillovers as a channel of bargaining power that a country might have when asking for financial support from regional lending institutions. We build and present a new database that records both the dates on which official meetings took place, relevant statements were released and the timing of the announcements regarding loan disbursements. This database allows us to assess the defining role that announcements of future actions have in mitigating spillover costs. In addition, we study the design of lending arrangements within a recursive contract between a lender and a sovereign country. When accounting for spillover costs, arising from the borrower to the creditor, we find that it is in the lender's best interest to back-load consumption by giving more weight to future transfers in order to reduce contagion cost. Subsequently, we test and validate our theoretical predictions by assessing the effect of spillovers on loan disbursements to programme-countries and by juxtaposing lending conditions imposed by the IMF and the European mechanisms.

Identifying International Financial Contagion

Author: Mardi Dungey

Publisher: Oxford University Press, USA

Published: 2005

Total Pages: 262

ISBN-13:

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This book tackles these factors theoretically, providing an intellectually satisfying framework for the understanding of financial contagion."--Jacket.

International Financial Contagion

Author: Stijn Claessens

Publisher: Springer Science & Business Media

Published: 2013-04-17

Total Pages: 461

ISBN-13: 1475733143

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No sooner had the Asian crisis broken out in 1997 than the witch-hunt started. With great indignation every Asian economy pointed fingers. They were innocent bystanders. The fundamental reason for the crisis was this or that - most prominently contagion - but also the decline in exports of the new commodities (high-tech goods), the steep rise of the dollar, speculators, etc. The prominent question, of course, is whether contagion could really have been the key factor and, if so, what are the channels and mechanisms through which it operated in such a powerful manner. The question is obvious because until 1997, Asia's economies were generally believed to be immensely successful, stable and well managed. This question is of great importance not only in understanding just what happened, but also in shaping policies. In a world of pure contagion, i.e. when innocent bystanders are caught up and trampled by events not of their making and when consequences go far beyond ordinary international shocks, countries will need to look for better protective policies in the future. In such a world, the international financial system will need to change in order to offer better preventive and reactive policy measures to help avoid, or at least contain, financial crises.

Regional Financial Interlinkages and Financial Contagion Within Europe

Author: Zsófia Árvai

Publisher: International Monetary Fund

Published: 2009

Total Pages: 44

ISBN-13:

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This paper focuses on financial interlinkages within Europe and potential contagion channeled through these interlinkages. It discusses the increased role of external financing as a source of funding for credit growth; analyzes potential channels of contagion through financial linkages; and assesses the magnitude of cross-border exposures between emerging and western European countries. Based on the stylized facts on these exposures, the paper provides simple indices of exposure to regional contagion that could help identify the likely pressure points and capture potential spillover effects and propagation channels of a regional shock originating from a given country.