Reinhart, Carmen and Kaminsky, Graciela and Vegh, Carlos (2003): The unholy trinity of financial contagion. Published in: Journal of Economic Perspectives , Vol. 17, No. 4 (September 2003): pp. 51-74.
Download (127kB) | Preview
Over the last 20 years, some financial events, such as devaluations or defaults, have triggered an immediate adverse chain reaction in other countries -- which we call fast and furious contagion. Yet, on other occasions, similar events have failed to trigger any immediate international reaction. We argue that fast and furious contagion episodes are characterized by "the unholy trinity": (i) they follow a large surge in capital flows; (ii) they come as a surprise; and (iii) they involve a leveraged common creditor. In contrast, when similar events have elicited little international reaction, they were widely anticipated and took place at a time when capital flows had already subsided.
|Item Type:||MPRA Paper|
|Original Title:||The unholy trinity of financial contagion|
|Keywords:||financial crises contagion capital flows credit ratings credit banks exchange rates|
|Subjects:||F - International Economics > F3 - International Finance > F30 - General
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
F - International Economics > F3 - International Finance > F36 - Financial Aspects of Economic Integration
|Depositing User:||Carmen Reinhart|
|Date Deposited:||10. Mar 2009 05:38|
|Last Modified:||13. Jan 2016 18:20|
Banerjee Abhijit. 1992. “A Simple Model of Herd Behavior.” Quarterly Journal of Economics. August, CVII:3, pp. 797-817.
Basu, Ritu. 1998. “Contagion Crises: The Investor’s Logic.” Mimeograph, University of California, Los Angeles.
Bikhchandani Sushil, David Hirshleifer, and Ivo Welch. 1992. “A Theory of Fads, Fashion, Custom, and Cultural Change as Informational Cascades.” Journal of Political Economy. 100:5, pp. 992-1026
Bikhchandani Sushil, David Hirshleifer, and Ivo Welch. 1998. “Learning from the Behavior of Others: Conformity, Fads, and Informational Cascades.” Journal of Economic Perspectives. Summer, 2:3, pp. 151-170.
Bordo, Michael and Barry Eichengreen. 1999. “Is Our Current International Economic Environment Unusually Crisis Prone?” International Financial System. Conference Proceedings. (eds.) David Gruen and Luke Gower. Capital Flows and the Reserve Bank of Australia. Sydney.
Bordo, Michael and Antu P. Murshid. 2000. “The International Transmission of Financial Crises before World War II: Was there Contagion.” Mimeograph.
Caballero, Ricardo, and Arvind Krishnamurthy. 2003. “Smoothing Sudden Stops.” Journal of Economic Theory, forthcoming.
Calvo, Guillermo. 1998. “Capital Market Contagion and Recession: An Explanation of the Russian Virus.” Mimeograph.
Calvo, Guillermo and Enrique Mendoza. 2000. “Rational Contagion and the Globalization of Securities Markets.” Journal of International Economics. June 51:1, pp. 79-113.
Calvo, Guillermo and Carmen Reinhart. 2000. “When Capital Inflows Come to a Sudden Stop: Consequences and Policy Options” in Reforming the International Monetary and Financial System, P. Kenen and A. Swoboda, eds. Washington DC: International Monetary Fund, pp. 175-201.
Caramazza, Franceso, Luca Ricci, and Ranil Salgado. 2000. “Trade and Financial Contagion in Currency Crises.” IMF Working Paper WP/00/55.
Corsetti, Giancarlo, Paolo Pesenti, and Nouriel Roubini. 2001 “The Role of Large Players in Currency Crises.” NBER Working Paper 8303, May.
Dawson, Frank G. 1990. The First Latin American Debt Crisis. New Haven and London: Yale University Press.
Diaz-Alejandro, Carlos. 1984. “Latin American Debt: I Don’t Think We Are in Kansas Anymore.” Brookings Papers on Economic Activity. 2, pp. 335-403.
Doukas, John. 1989. “Contagion Effect on Sovereign Interest Rate Spreads.”, Economic Letters. 29, 237-241.
Eichengreen, Barry, Andrew Rose, and Charles Wyplosz. 1996. “Contagious Currency Crises: First Tests.” Scandinavian Journal of Economics. 98, pp. 463-484.
Frankel, Jeffrey and Sergio Schmukler. 1998. “Crises, Contagion and Country Funds: Effects on East Asia and Latin America,” in Managing Capital Flows and Exchange Rates: Perspectives from the Pacific Basin. Reuven Glick, ed. New York: Cambridge University Press, pp. 232-266
Gerlach, S. and Frank Smets. 1996. “Contagious Speculative Attacks.” CEPR Discussion Paper No. 1055.
Glick, Reuven and Andrew Rose. 1999. “Contagion and Trade: Why Are Currency Crises Regional.” Journal of International Money and Finance. August, 18:4, pp. 603-617.
Goldstein, Morris. 1998. The Asian Financial Crisis. Washington, DC: Institute for International Economics.
International Monetary Fund, Capital Markets Report. Various issues.
International Monetary Fund, World Economic Outlook. Various issues.
Kaminsky, Graciela and Carmen Reinhart. 2000. “On Crises, Contagion, and Confusion.” Journal of International Economics. June, 51:1, pp. 145-168.
Kaminsky, Graciela and Sergio Schmukler. 1999. “What Triggers Market Jitters? A Chronicle of the Asian Crisis.” Journal of International Money and Finance. August,18:4, pp. 537-560.
Kaminsky, Graciela, Richard Lyons, and Sergio Schmukler. 2000. “Managers, Investors, and Crises: Mutual Fund Strategies in Emerging Markets.” NBER Working Paper No. 7855.
Kaminsky, Graciela, Richard Lyons, and Sergio Schmukler 2002 “Liquidity, Fragility, and Risk: The Behavior of Mutual Funds During Crises.” Mimeograph.
Kindleberger, Charles P., 2000, Manias, Panics, and Crashes. John Wiley & Sons, 4th edition.
Kodres, Laura, and Matthew Pritsker. 2002. “A Rational Expectations Model of Financial Contagion.” Journal of Finance. April, LVII:2, pp. 769-800.
Lahiri, Amartya, and Carlos A. Végh. 2003. “Delaying the Inevitable: Optimal Interest Rate Defense and BOP Crises,” Journal of Political Economy, forthcoming.
Mody, Ashok and Mark Taylor. 2002. “Common Vulnerabilities.” Mimeograph.
Neal, Larry and Marc Weidenmeir. 2002. “Crises in the Global Economy from Tulips to Today: Contagion and Consequences.” National Bureau of Economic Research Working Paper 9147. September.
Nurkse, Ragnar. 1944. International Currency Experience: Lessons of the Interwar Period, Geneva: League of Nations.
Reinhart, Carmen M., Kenneth S. Rogoff, and Miguel A. Savastano. 2003. “Debt Intolerance.” Brookings Papers on Economic Activity, forthcoming.
Shleifer Andrei and Robert W. Vishny: The Limits of Arbitrage, Journal of Finance, vol. LII, no 1, March 1997, pp. 35-55
Talvi, Ernesto and Carlos A. Végh, 2000. "Tax Base Variability and Procyclical Fiscal Policy." NBER Working Paper No. 7499.
Van Rijckeghem, Caroline and Beatrice Weder. 2000. “Financial contagion: Spillovers through Banking Centers.” Mimeograph.