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Author | : Mr.Joshua Aizenman |
Publisher | : International Monetary Fund |
Total Pages | : 34 |
Release | : 1997-10-01 |
Genre | : Business & Economics |
ISBN | : 145193596X |
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This paper interprets contagion effects as an increase in the volatility of aggregate shocks impinging on the domestic economy. The implications of this approach are analyzed in a model with two types of credit market imperfections: domestic banks borrow at a premium on world capital markets, and domestic producers (whose demand for credit results from working capital needs) borrow at a premium from domestic banks. Higher volatility of producers’ productivity shocks increases both domestic and foreign financial spreads and the producers’ cost of capital, resulting in lower employment and higher incidence of default. Welfare effects are nonlinearly related to the degree of international financial integration.
Author | : Pierre-Richard Agenor |
Publisher | : |
Total Pages | : 33 |
Release | : 2006 |
Genre | : |
ISBN | : |
Download Contagion and Volatility with Imperfect Credit Markets Book in PDF, ePub and Kindle
This paper interprets contagion effects as an increase in the volatility of aggregate shocks impinging on the domestic economy. The implications of this approach are analyzed in a model with two types of credit market imperfections: domestic banks borrow at a premium on world capital markets, and domestic producers (whose demand for credit results from working capital needs) borrow at a premium from domestic banks. Higher volatility of producers` productivity shocks increases both domestic and foreign financial spreads and the producers` cost of capital, resulting in lower employment and higher incidence of default. Welfare effects are nonlinearly related to the degree of international financial integration.
Author | : Pierre-Richard Agénor |
Publisher | : |
Total Pages | : 33 |
Release | : 1997 |
Genre | : |
ISBN | : |
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Author | : Pierre-Richard Agénor |
Publisher | : |
Total Pages | : 50 |
Release | : 1997 |
Genre | : Bank deposits |
ISBN | : |
Download Contagion and Volatility with Imperfect Credit Markets Book in PDF, ePub and Kindle
This paper interprets contagion effects as a perceived increase (triggered by events occurring elsewhere) in the volatility of aggregate shocks impinging on the domestic economy. The implications of this approach are analyzed in a model with two types of credit market imperfections: domestic banks borrow at a premium on world capital markets, and domestic producers (whose demand for credit results from working capital needs) borrow at a premium from domestic banks which possess comparative advantage in monitoring the behavior of domestic agents. Financial intermediation spreads are shown to be determined by a markup that compensates for the expected cost of contract enforcement and state verification and for the expected revenue lost in adverse states of nature. Higher volatility of producers' productivity shocks increases both financial spreads and the producers' cost of capital, resulting in lower employment and higher incidence of default. The welfare effects of volatility are non-linear. Higher volatility does not impose any welfare cost for countries characterized by relatively low volatility and efficient financial intermediation. The adverse welfare effects are large (small) for countries that are at the threshold of full integration with international capital markets (close to financial autarky), that is, countries characterized by a relatively low (high) probability of default.
Author | : International Monetary Fund. Research Dept. |
Publisher | : International Monetary Fund |
Total Pages | : 203 |
Release | : 1998-01-01 |
Genre | : Business & Economics |
ISBN | : 1455277444 |
Download IMF Staff papers Book in PDF, ePub and Kindle
This paper analyzes contagion and volatility with imperfect credit markets. The paper interprets contagion effects as an increase in the volatility of shocks impinging on the economy. The implications of this approach are analyzed in a model in which domestic banks borrow at a premium on world capital markets, and domestic producers borrow at a premium from domestic banks. Financial spreads depend on a markup that compensates lenders, in particular, for the expected cost of contract enforcement. Higher volatility increases financial spreads and the producers’ cost of capital.
Author | : Mr.Garry J. Schinasi |
Publisher | : International Monetary Fund |
Total Pages | : 39 |
Release | : 1999-10-01 |
Genre | : Business & Economics |
ISBN | : 1451855796 |
Download Portfolio Diversification, Leverage, and Financial Contagion Book in PDF, ePub and Kindle
Models of “contagion” rely on market imperfections to explain why adverse shocks in one asset market might be associated with asset sales in many unrelated markets. This paper demonstrates that contagion can be explained with basic portfolio theory without recourse to market imperfections. It also demonstrates that “Value-at-Risk” portfolio management rules do not have significantly different consequences for portfolio rebalancing and contagion than other rules. The paper’s main conclusion is that portfolio diversification and leverage may be sufficient to explain why investors would find it optimal to sell many higher-risk assets when a shock to one asset occurs.
Author | : |
Publisher | : INTERNATIONAL MONETARY FUND |
Total Pages | : 57 |
Release | : 2008-06-10 |
Genre | : |
ISBN | : 9781451922370 |
Download Finance & Development, June 2008 Book in PDF, ePub and Kindle
The June 2008 issue tackles the crisis in financial markets in industrial countries from a number of angles. Articles look at the origins of the crisis in the subprime mortgage market in the United States and track its spillover into other markets. Then authors examine what can be done to prevent future crises. Other articles look at bank capital adequacy rules and Basel II, whether emerging markets and industrial economies are decoupling or converging, capital flows to low-income countries, efforts to achieve the MDGs, and currency intervention. Back to Basics looks at over-the-counter (OTC) markets and the People in Economics column profiles Jacques Polak. Picture This is on the digital divide.
Author | : Pierre-Richard Agénor |
Publisher | : World Bank Publications |
Total Pages | : 36 |
Release | : 1999 |
Genre | : Argentina |
ISBN | : |
Download Contagion, Bank Lending Spreads, and Output Fluctuations Book in PDF, ePub and Kindle
A positive historical shock to external spreads can lead to an increase in domestic spreads and a reduction in the cyclical component of output. Shocks to external spreads immediately after the Mexican peso crisis had a sizable effect on movements in output and domestic interest rate spreads in Argentina.
Author | : Stijn Claessens |
Publisher | : Springer Science & Business Media |
Total Pages | : 461 |
Release | : 2013-04-17 |
Genre | : Business & Economics |
ISBN | : 1475733143 |
Download International Financial Contagion Book in PDF, ePub and Kindle
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.
Author | : Mr.Taimur Baig |
Publisher | : International Monetary Fund |
Total Pages | : 60 |
Release | : 1998-11-01 |
Genre | : Business & Economics |
ISBN | : 1451857284 |
Download Financial Market Contagion in the Asian Crisis Book in PDF, ePub and Kindle
This paper tests for evidence of contagion between the financial markets of Thailand, Malaysia, Indonesia, Korea, and the Philippines. Cross-country correlations among currencies and sovereign spreads are found to increase significantly during the crisis period, whereas the equity market correlations offer mixed evidence. A set of dummy variables using daily news is constructed to capture the impact of own-country and cross-border news on the markets. After controlling for own-country news and other fundamentals, the paper shows evidence of cross-border contagion in the currency and equity markets.