Akçay, Cevdet and Zenginobuz, Unal (2000): Vulnerability to purely contagious balance of payment crises in emerging economies: An application to the cases of Russia, Turkey, and Brazil. Published in: Russian and East European Finance and Trade , Vol. 37, No. 5 (September 2001): pp. 5-21.
Download (3MB) | Preview
We explore the possible role of interdependence of expectations in emerging market economies and analyze the crisis transmission mechanism within the ”pure”contagion framework. We consider the cases of Russia, Turkey, and Brazil, and assess whether the fundamentals of these countries allowed for the possibility of ”pure”contagion e¤ects from each other. In particular, we look at Russia - Turkey and Brazil - Russia pairs in year 1997 to see whether Brazilian and the Turkish economies exhibited vulnarability to pure contagion before the 1998 Russian crisis We also repeat the same exercise with the most recent 1999 data. The rationale for choosing these pairings is the huge volume of (luggage) trade between geographical neighbors Russia and Turkey, and the similar export structures of Russia and Brazil (predominantly raw materials) which are continents apart. Our results clearly indicate vulnerability of Brazilian and Turkish economies to high probability of crisis in Russia even in the face of improving fundamentals. In isolation, Brazilian and Turkish fundamentals were not weak enough to place them in a sure-crisis situation. With the incorporation of the Russian link, the multiple equilibria setting disappeared for both countries, rendering sure-crisis as the single equilibrium solution.
|Item Type:||MPRA Paper|
|Original Title:||Vulnerability to purely contagious balance of payment crises in emerging economies: An application to the cases of Russia, Turkey, and Brazil|
|Keywords:||contagion; balance of payment crisis; emerging economies; Turkey|
|Subjects:||F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F42 - International Policy Coordination and Transmission
F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics
|Depositing User:||Unal Zenginobuz|
|Date Deposited:||07. Oct 2006|
|Last Modified:||13. Feb 2013 19:28|
Calvo G. (1995), Varieties of Capital Market Mrises’, WP 15, Center for International Economics, University of Maryland.
Calvo G. (1998), Understanding the Russian Virus with Special Reference to Latin America’, Paper presented at the Deutsche Bank’s Conference on Emerging Markets: Can They be Crises Free?’, Washington D.C, October 3.
Chang R., A. Velasco (1998a), Financial Crises in Emerging Markets: A Canonical Model’, NBER Working Paper No. 6066, Cambridge, Massachusetts.
Chang R., A. Velasco (1998b), The Asian Liquidity Crises’, NBER Working Paper No. 6796, Cambridge, Massachusetts.
Chari V., and P. Kehoe (1998), Asking the Right Questions About the IMF’, 1998 Annual Report Essay, Federal Reserve Bank of Minneapolis.
Cole H., and T. Kehoe (1996), A Self-Ful…lling Model of Mexico’s 1994-95 Debt Crisis,Journal of International Economics, Vol. 41, pp. 309-30.
Corsetti G., P. Pesenti, and N. Roubini (1999), What Caused the Asian Currency Crises?, Japan and the World Economy, Vol. 17, pp. 305-73.
Dornbusch R., Y. C. Park, and S. Claessens (1999), Contagion: How It Spreads and How It Can Be Stopped?’, Paper prepared for the WIDER workshop on financial contagion, World Bank.
Fischer S. (1999), The Financial Frisis in Emerging Markets: Some lessons, Speech delivered on April 28, 1999, IMF, Washington D.C.
Furman, P., and J.Stiglitz (1998), ’Economic Crises: Evidence and Insights from East Asia, Brookings Papers on Economic Activity, 2(1): 136.
Goldstein M. (1998), The Asian Financial Crises: Causes, Cures, and Systemic Implications, Policy Analyses in International Economics, No. 55, Institute for International Economics, Washington D.C.
IMF (1997), World Economic Outlook: Interim Assessment, IMF, Washington D.C.
Jeanne O. (1997), Are Currency Crises Self-Ful…lling? A Test’, Journal of International Economics, Vol. 34, No. 3-4, pp. 263-86.
Krugman P. (1979), A Model of Balance of Payment Crises’, Journal of Money, Credit and Banking, Vol 11, pp. 311-325.
Krugman P. (1996), Are Currency Crises Self-Ful…lling?’, Paper presented at the NBER Annual Macroeconomics Conference.
Krugman P. (1998), What Happened in Asia?’, mimeo, MIT, Cambridge, Massachusetts.
Masson P. (1998), Contagion: Mansoonal E¤ects, Spillovers, And Jumps Between Multiple Equilibria, Working Paper, IMF, WP/98/142.
Masson P. (1999a), Contagion: Mansoonal Effects, Spillovers, and Jumps Between Multiple Equilibria, in P.R. Agenor, M. Miller, D. Vines, and A. Weber, eds., The Asian Financial Crisis: Causes, Contagion and Consequences, Cambridge University Press, Cambridge, U.K.
Masson P. (1999b), Contagion: Macroeconomic Models with Multiple Equilibria’, Journal of International Money and Finance, Vol. 18(4), pp. 587-602.
Masson P. (1999c), Multiple Equilibria, Contagion, and the Emerging Market Crises’, IMF Working Paper WP/99/164, Washinton D.C.
Masson P. and M. Mussa (1995), The Role of the Fund: Financing and Its interactions with Adjustments and Surveillance’, Pamphlet Series No. 50, IMF, Washinton D.C.
Radelet S., and J. Sachs (1998), ’The East Asian Dinancial Crises: Diagnosis, Remedies, Prospects’, Brookings Papers on Economic Activity, Vol. 1, pp. 1-90.
Sachs J., A. Tornell, and A. Velasco (1996), ’The Mexican Peso Crisis: Sudden Death or Death Foretold?’, Journal of International Economics, Vol. 41, pp. 265-83.