Transmission of Financial Crises and Contagion:

Transmission of Financial Crises and Contagion: PDF

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.

International Financial Contagion

International Financial Contagion PDF

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.

Emerging Tools and Strategies for Financial Management

Emerging Tools and Strategies for Financial Management PDF

Author: Álvarez-García, Begoña

Publisher: IGI Global

Published: 2020-02-14

Total Pages: 357

ISBN-13: 1799824411

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Over the past years, significant changes have occurred in the corporate sector arising from globalization, increasing international competitiveness, and intensive use of information and communication technologies (ICTs). These developments have led to new corporate and social behaviors that are affecting the entire corporate value chain. Thus, business organizations are focusing on technological innovation as a driving force of development. Emerging Tools and Strategies for Financial Management is a pivotal reference source that explores both practical and theoretical perspectives on how financial management is evolving and how future consequences of technological innovation will affect individuals, businesses, and society. While highlighting topics such as financial imbalance, venture capital, and shadow banking, this publication explores the relationship between companies and their customers and the methods of generating changes in today’s enterprises. This book is ideally designed for business managers, financial analysts, financial controllers, directors, finance officers, treasurers, entrepreneurs, CEOs, academicians, students, and research professionals.

Financial Contagion

Financial Contagion PDF

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.

Global Financial Crisis, Financial Contagion, and Emerging Markets

Global Financial Crisis, Financial Contagion, and Emerging Markets PDF

Author: Mr.F. Gulcin Ozkan

Publisher: International Monetary Fund

Published: 2012-12-13

Total Pages: 58

ISBN-13: 1475518498

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The recent global financial crisis was the first in recent history that was triggered by problems in the financial system of the mature economies. Existing work on financial crisis in emerging market countries, however, almost exclusively focus on the role of financial frictions in the domestic economy. In contrast, we propose a two-country DSGE model to investigate the transmission of a global financial crisis that originates from financial frictions in the rest of the world. We find that the scale of financial spillovers from the global to the domestic economy and trade openness are key determinants of the severity of the financial crisis for the domestic economy. Our results also suggest that the welfare ranking of alternative monetary policy regimes is determined by the degree of financial contagion, the degree of trade openness as well as the scale of foreign currency denominated debt in the domestic economy.

Theories of Contagion

Theories of Contagion PDF

Author: Andreas Vester

Publisher: diplom.de

Published: 2006-10-02

Total Pages: 89

ISBN-13: 3832498737

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Inhaltsangabe:Abstract: In recent years academics and policy makers have become more and more interested in the phenomenon of contagion, a concept involving the transmission of a financial crisis from one country to one or more other countries. During the 1990s world capital markets witnessed a number of financial crises. In 1992 the Exchange Rate Mechanism (ERM) crisis hit the European continent. Several countries in Latin America have been rocked during the 1994-95 Tequila crisis, and the Asian Flu spread through East Asian countries in 1997-98 with dramatic social implications. Later in 1998 the famous hedge fund Long Term Capital Management (LTCM) had to file for bankruptcy and the Russian debt failure shocked international capital markets and increased volatility on a global scale. The crisis spread to as far as Brazil in early 1999 and developed markets have become victims as well. The question asked by academics and policy makers is how countries should behave in order to avoid contagion. To answer this question it is necessary to understand the different channels of contagion in greater detail and how a crisis can be transmitted from one country to another. The objective of this paper is to highlight those channels and to present a number of models and theories of contagion, which have recently been developed by academics. In general, there are several strands of theories in the literature that try to explain the transmission of crises. During the mid and late 1990s fundamental-based contagion and spillovers became popular among researchers and policy makers. Furthermore, financial linkages have been known to contribute to contagion. In contrast, in recent years, portfolio flows of international investors moved into the focus of academics. The advocates of fundamental-based contagion and spillovers argue that trade linkages between countries are responsible for contagion. For instance, a devaluation of a country's currency may lead to a negative change in fundamentals of its trading partners. On the other hand, contagion due to financial linkages is mainly explained by the fact that countries share the same banks and therefore have common creditors. A crisis in one country then leads to a deteriorating balance sheet of those common creditors. This in turn may force banks to withdraw money out of other countries in order to avoid further losses, a fact that leads to contagious sellouts. The role of international portfolio flows, which is [...]

Contagion! Systemic Risk in Financial Networks

Contagion! Systemic Risk in Financial Networks PDF

Author: T. R. Hurd

Publisher: Springer

Published: 2016-05-25

Total Pages: 146

ISBN-13: 3319339303

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This volume presents a unified mathematical framework for the transmission channels for damaging shocks that can lead to instability in financial systems. As the title suggests, financial contagion is analogous to the spread of disease, and damaging financial crises may be better understood by bringing to bear ideas from studying other complex systems in our world. After considering how people have viewed financial crises and systemic risk in the past, it delves into the mechanics of the interactions between banking counterparties. It finds a common mathematical structure for types of crises that proceed through cascade mappings that approach a cascade equilibrium. Later chapters follow this theme, starting from the underlying random skeleton graph, developing into the theory of bootstrap percolation, ultimately leading to techniques that can determine the large scale nature of contagious financial cascades.

Contagion in Financial Markets

Contagion in Financial Markets PDF

Author: Friedrich L. Sell

Publisher: Edward Elgar Publishing

Published: 2001-01-01

Total Pages: 248

ISBN-13: 9781781956250

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This book aims to integrate the notions of contagion in epidemiology and contagion in financial market crises to discover why emerging markets are so susceptible to financial crises. The author first provides a brief introduction of the contagious spill-over of recent financial market crises and models the pattern of these crises. He finds that the contagion between crises in emerging markets, such as that of the crises in Russia and Brazil in 1998-1999, is explicable, despite the fact that at first sight they appear to have little in common. Finally, Friedrich Sell integrates these findings to outline a proposal for a 'new international financial architecture'.

New Approaches of Testing for Financial Market Crisis and Contagion

New Approaches of Testing for Financial Market Crisis and Contagion PDF

Author: Yu-Ling Cody Hsiao

Publisher:

Published: 2014

Total Pages: 448

ISBN-13:

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This thesis consists of four chapters that focus on the development of new statistical frameworks or tests of financial market crisis and contagion. A new test for financial market contagion based on changes in the fourth order co-moments is proposed in chapter 2 to identify the propagation mechanism of shocks across international financial markets. The proposed approach captures changes in various aspects of the asset return relationships such as cross-market mean and skewness (co-kurtosis) as well as cross-market volatilities (co-volatility). In an empirical application involving the global financial crisis of 2008-09, the results show that significant contagion effects are widespread from the US banking sector to global equity markets and banking sectors through either the co-kurtosis or the co-volatility channel. Chapter 3 analyses nine financial crises from Asia in 1997-98 to the recent European debt crisis of 2010-13 to answer the question of whether the great recession is different to other crises in terms of a range of hypotheses regarding contagion transmission. This chapter examines financial contagion with a focus on the correlation and co-skewness change tests, and the proposed co-volatility change test in chapter 2 to capture changes in the various aspects of the asset return relationships. The empirical results indicate that the great recession and European debt crisis are truly global financial crises. Linkages through financial channels are more likely to result in crisis transmission than through trade, and crises beginning emerging markets transmit unexpectedly, particularly to developed markets. Chapter 4 introduces a new class of multiple-channel tests of financial market contagion in which the transmission channels of financial market crises are identified jointly through the correlation, co-skewness and co-kurtosis of the distribution of returns. The proposed tests yield the correct size in small samples which is typical of crisis periods. Regarding the power of the tests, the multiple-channel tests display the second highest power following the single-channel tests if the data generating process for an experiment contains the transmission channel of contagion consistent with the single-channel test. In an empirical application involving the three financial crises of 2007-12, the results show that the joint tests identify various combinations of transmission channels. Chapter 5 introduces new framework for testing for crisis and contagion using a regime switching skew-normal model (RSSN model). This new approach provides a more general framework for developing five types of crisis and contagion channels simultaneously. Measuring financial contagion within the RSSN model can solve several econometric problems. These are i) market dependence is fully captured by simultaneously considering both second and third order co-moments of asset returns; ii) transmission channels are simultaneously examined; iii) crisis and contagion are distinguished and individually modelled; iv) the market that a crisis originates is endogenous; and v) the timing of a crisis is endogenous. By applying the proposed model to equity markets during the great recession using Bayesian model comparison techniques, the results generally show that crisis and contagion are pervasive across Europe and the US through the second and third moment channels during the great recession.

Evolution of the Global Financial Network and Contagion: A New Approach

Evolution of the Global Financial Network and Contagion: A New Approach PDF

Author: Ms.Yevgeniya Korniyenko

Publisher: International Monetary Fund

Published: 2018-05-15

Total Pages: 41

ISBN-13: 1484353242

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This paper studies the interconnectedness of the global financial system and its susceptibility to shocks. A novel multilayer network framework is applied to link debt and equity exposures across countries. Use of this approach—that examines simultaneously multiple channels of transmission and their important higher order effects—shows that ignoring the heterogeneity of financial exposures, and simply aggregating all claims, as often done in other studies, can underestimate the extent and effects of financial contagion.The structure of the global financial network has changed since the global financial crisis, impacted by European bank’s deleveraging and higher corporate debt issuance. Still, we find that the structure of the system and contagion remain similar in that network is highly susceptible to shocks from central countries and those with large financial systems (e.g., the USA and the UK). While, individual European countries (excluding the UK) have relatively low impact on shock propagation, the network is highly susceptible to the shocks from the entire euro area. Another important development is the rising role of the Asian countries and the noticeable increase in network susceptibility to shocks from China and Hong Kong SAR economies.