Are Financial Crises Alike?

59 Pages Posted: 18 Jan 2010

See all articles by Mardi Dungey

Mardi Dungey

University of Cambridge - Cambridge Endowment for Research in Finance (CERF)

Renee Fry

Australian National University (ANU) - Department of Economics

Vance L. Martin

University of Melbourne - Department of Economics; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

Chrismin Tang

University of Melbourne; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

Brenda González-Hermosillo

International Monetary Fund; Massachusetts Institute of Technology

Date Written: Janurary 2010

Abstract

This paper investigates whether financial crises are alike by considering whether a single modeling framework can fit multiple distinct crises in which contagion effects link markets across national borders and asset classes. The crises considered are Russia and LTCM in the second half of 1998, Brazil in early 1999, dot-com in 2000, Argentina in 2001-2005, and the recent U.S. subprime mortgage and credit crisis in 2007. Using daily stock and bond returns on emerging and developed markets from 1998 to 2007, the empirical results show that financial crises are indeed alike, as all linkages are statistically important across all crises. However, the strength of these linkages does vary across crises. Contagion channels are widespread during the Russian/LTCM crisis, are less important during subsequent crises until the subprime crisis, where again the transmission of contagion becomes rampant.

Keywords: Banking crisis, Capital markets, Cross country analysis, Developed countries, Economic models, Emerging markets, External shocks, Financial crisis, Spillovers

Suggested Citation

Dungey, Mardi and Fry, Renee and Martin, Vance L. and Tang, Chrismin and González-Hermosillo, Brenda, Are Financial Crises Alike? (Janurary 2010). IMF Working Paper No. 10/14, Available at SSRN: https://ssrn.com/abstract=1537510

Mardi Dungey (Contact Author)

University of Cambridge - Cambridge Endowment for Research in Finance (CERF) ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

HOME PAGE: http://www.dungey.bigpondhosting.com

Renee Fry

Australian National University (ANU) - Department of Economics ( email )

Canberra, Australian Capital Territory 2600
Australia

Vance L. Martin

University of Melbourne - Department of Economics ( email )

Melbourne, 3010
Australia

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

ANU College of Business and Economics
Canberra, Australian Capital Territory 0200
Australia

Chrismin Tang

University of Melbourne ( email )

185 Pelham Street
Carlton, Victoria 3053
Australia

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

ANU College of Business and Economics
Canberra, Australian Capital Territory 0200
Australia

Brenda González-Hermosillo

International Monetary Fund ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-4210 (Phone)
202-589-4210 (Fax)

Massachusetts Institute of Technology ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

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