International Financial Contagion

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.

List of contents

I: Overview: The Theory and Empirics of Contagion.- 1. International Financial Contagion: An Overview of the Issues and the Book.- 2. Contagion: Why Crises Spread and How This Can Be Stopped.- 3. Measuring Contagion: Conceptual and Empirical Issues.- 4. The Channels for Financial Contagion.- II: Specific Mechanisms Driving Contagion.- 5. Crisis Transmission: Evidence from the Debt, Tequila and Asian Flu Crises.- 6. Flight to Quality: Investor Risk Tolerance and the Spread of Emerging Market Crises.- 7. Mutual Fund Investment in Emerging Markets: An Overview.- 8. Portfolio Diversification, Leverage, and Financial Contagion.- III: Case Studies of Contagion.- 9. Thai Meltdown and Transmission of Recession within the ASEAN4 and NIE4.- 10. Financial Contagion in the East Asian Crisis: With Special Reference to the Republic of Korea.- 11. The Russian Default and the Contagion to Brazil.- 12. Contagion of International Financial Crises: The Case of Mexico.- 13. Financial Market Spillovers: How Different are the Transition Economies?.- 14. Are Financial Crises Becoming More Contagious?: What is the Historical Evidence on Contagion?.- IV: Implications for Policy and the International Financial Architecture.- 15. International Contagion: Implications for Policy.- 16. International Financial Reform: Regulatory and Other Issues.- V: Original Conference Program.

Summary

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.

Additional text

`It is difficult to avoid being impressed by the very high level of quality in this research collection. For those who attended the conference meetings, this comes as no surprise since the atmosphere was wonderfully dynamic and full of tough give and take. That flavor is not lost in this more formal rendition. Before this conference, very little was available in this area. Policy makers, policy research departments and students of emerging-market finance will find a wealth of information in this book. They will also find some answers, plenty of controversy, and lots of open questions.'
Rudiger Dornbusch, Massachusetts Institute of Technology

Report

`It is difficult to avoid being impressed by the very high level of quality in this research collection. For those who attended the conference meetings, this comes as no surprise since the atmosphere was wonderfully dynamic and full of tough give and take. That flavor is not lost in this more formal rendition. Before this conference, very little was available in this area. Policy makers, policy research departments and students of emerging-market finance will find a wealth of information in this book. They will also find some answers, plenty of controversy, and lots of open questions.'
Rudiger Dornbusch, Massachusetts Institute of Technology

Product details

• Authors: Stijn Claessens, Kristin Forbes
• Assisted by: Stij Claessens (Editor), Stijn Claessens (Editor), Forbes (Editor), Forbes (Editor), Kirsten Forbes (Editor)
• Publisher: Springer, Berlin
• Languages: English
• Product format: Hardback
• Released: 29.06.2009
• EAN: 9780792372851
• ISBN: 978-0-7923-7285-1
• No. of pages: 466
• Weight: 848 g
• Illustrations: XII, 466 p.
• Subjects: Social sciences, law, business > Business > Economics; C, Finance, Finance, general, Economics and Finance, International Economics, Financial Economics, ASEAN;East Asia;Financial Market;Investment;Portfolio