Trade and Financial Contagion in Currency Crises

This paper investigates empirically the relevance of external, domestic, and financial weaknesses as well as trade and financial linkages in inducing financial crises for a sample of 61 emerging market and industrial countries. A panel probit estimation finds these economic indicators to be significant for emerging market countries during the Mexican, Asian, and Russian crises. In particular, the indicators of vulnerability to international financial spillover (common creditor) and of financial fragility (reserve adequacy) are highly significant and appear to explain the apparent regional concentration of these crises. Exchange rate regimes and capital controls, however, do not seem to matter.Trade;contagion, exchange rate, currency crises, asian crisis, crisis country, crisis countries, financial contagion, exchange rate regimes, financial crises, real exchange rate, exchange rate appreciation, competitiveness, banking crises, crisis episodes, foreign exchange, exchange rates, financial crisis, foreign exchange market, banking crisis, speculative attacks, current account balance, exchange rate regime, exchange rate changes, currency crisis, exchange restrictions, exchange arrangements, fixed exchange rate, crisis economies, real exchange rate appreciation, real effective exchange rate, currency depreciation, effective exchange rate, fixed exchange rate regimes, flexible exchange rate, financial distress, pre-crisis, flexible exchange rate regime, real effective exchange rates, debt crisis, international financial contagion, devaluation crisis, fixed exchange rate regime, exchange rate arrangements, country exchange rate, nominal exchange rate, early warning system, real exchange rates, exchange rate movements, exchange rate pressures, early warning systems, crisis episode, asian financial crisis, balance of payments crisis, dollar exchange rate, exchange market intervention, foreign exchange reserves, payments crisis, crisis index, financial indicators, exchange reserves, exchange rate misalignment, effective exchange rates, exchange rate policy