International Contagion Effects from the Russian Crisis and the LTCM Near-Collapse

Author/Editor:

Renee Fry ; Vance Martin ; Brenda Gonzalez-Hermosillo ; Mardi Dungey

Publication Date:

April 1, 2002

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

We examine empirically the episode of extraordinary turbulence in global financial markets during 1998. The analysis focuses on the market assessment of credit risk captured by daily movements in bond spreads for twelve countries. A dynamic latent factor model is estimated using indirect inference to quantify the effects of unanticipated shocks across borders or "contagion," controlling for common global shocks, country-specific shocks and regional factors. The results show that there were substantial international contagion effects resulting from both the Russian and LTCM crises. The proportion of volatility explained by contagion is not necessarily larger in developing than in developed nations.

Series:

Working Paper No. 2002/074

Subject:

Financial crises Financial institutions Financial markets Financial services International bonds International capital markets Securities markets Yield curve

English

Publication Date:

April 1, 2002

ISBN/ISSN:

9781451849608/1018-5941

Stock No:

WPIEA0742002

Pages:

48

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