Global Financial Crisis, Financial Contagion, and Emerging Markets

59 Pages Posted: 18 Jan 2013

See all articles by F. Gulcin Ozkan

F. Gulcin Ozkan

University of York

D. Filiz Unsal

International Monetary Fund (IMF) - Research Department

Date Written: December 2012

Abstract

The recent global financial crisis was the first in recent history that was triggered by problems in the financial system of the mature economies. Existing work on financial crisis in emerging market countries, however, almost exclusively focus on the role of financial frictions in the domestic economy. In contrast, we propose a two-country DSGE model to investigate the transmission of a global financial crisis that originates from financial frictions in the rest of the world. We find that the scale of financial spillovers from the global to the domestic economy and trade openness are key determinants of the severity of the financial crisis for the domestic economy. Our results also suggest that the welfare ranking of alternative monetary policy regimes is determined by the degree of financial contagion, the degree of trade openness as well as the scale of foreign currency denominated debt in the domestic economy.

Keywords: Global Financial Crisis 2008-2009, Emerging markets, Trade integration, Economic integration, External shocks, Spillovers, Economic models, sudden stops, financial crisis, emerging markets

JEL Classification: E50, F30, F40

Suggested Citation

Ozkan, F. Gulcin and Unsal, D. Filiz, Global Financial Crisis, Financial Contagion, and Emerging Markets (December 2012). IMF Working Paper No. 12/293, Available at SSRN: https://ssrn.com/abstract=2202641

F. Gulcin Ozkan (Contact Author)

University of York ( email )

Heslington
University of York
York, YO10 5DD
United Kingdom

D. Filiz Unsal

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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