Contagion Effect of Currency Crises : a Probit Approach

In this paper, we analyze the role of trade contagion, financial contagion, and fundamentals in the propagation of currency crisis. For the Asian, Russian, Brazilian, and Argentinean crisis, panel probit regression applied on 30 emerging market countries shows that trade contagion plays a significant role, and financial contagion is also an effective channel in the transmission of these crises. For the Mexican crisis, cross-section probit regression on 24 developing countries shows that fundamentals can explain the occurrence of Mexican crisis mostly. Either trade contagion or financial contagion plays some role in the spread of the Mexican crisis