Are Financial Crises Becoming Increasingly More Contagious? What is the Historical Evidence on Contagion?

70 Pages Posted: 16 Sep 2000 Last revised: 19 Oct 2010

See all articles by Michael D. Bordo

Michael D. Bordo

Rutgers University, New Brunswick - Department of Economics; National Bureau of Economic Research (NBER)

Antu Panini Murshid

University of Wisconsin - Milwaukee - Department of Economics

Date Written: September 2000

Abstract

We examine the evidence of contagion during the pre World War I era and the interwar and contrast our findings with the evidence of contagion from the recent crises in Asia and Latin America. Using weekly data on bond prices and interest rates, we investigate the extent to which bilateral cross-market correlations rise following the onset of a crisis. After correcting for heteroscedasticity, ala Forbes and Rigobon (1998, 1999), we find little evidence of significant increases in cross-market correlations in either the earlier regimes or in the more recent period. We use principle components analysis to assess the extent of comovement across all markets as well as within various groups of markets, prior to, and after the onset of a crisis. Countries are grouped into regions, as well as along the lines of advanced and emerging. There is little evidence to suggest that cross-country linkages are tighter in the aftermath of a financial crisis for the recent period. There is, however, some evidence of stronger comovement during periods of instability in earlier regimes.

Suggested Citation

Bordo, Michael D. and Murshid, Antu Panini, Are Financial Crises Becoming Increasingly More Contagious? What is the Historical Evidence on Contagion? (September 2000). NBER Working Paper No. w7900. Available at SSRN: https://ssrn.com/abstract=242133

Michael D. Bordo (Contact Author)

Rutgers University, New Brunswick - Department of Economics ( email )

New Brunswick, NJ
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Antu Panini Murshid

University of Wisconsin - Milwaukee - Department of Economics ( email )

210 N. Maryland Avenue
Bolton Hall, 856
Milwaukee, WI 53211
United States
414-229-4402 (Phone)
414-229-3860 (Fax)

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