Debt and Financial Market Contagion

33 Pages Posted: 9 Feb 2015

See all articles by Cody Yu-Ling Hsiao

Cody Yu-Ling Hsiao

University of New South Wales (UNSW); Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

James Morley

University of Sydney

Date Written: January 27, 2015

Abstract

We investigate the role of public, private, and external debt in explaining the propagation of financial shocks during three major financial crises from 2007-2013. For our analysis, we construct indices of crisis severity in equity markets based on different tests of contagion and investigate whether the transmission of crises across countries can be related to similar debt conditions. We compare the role of debt stocks and flows to traditional channels for contagion based on regional and trade linkages. Our main finding is that, along with regional linkages, public and external debt play a more important role than trade linkages in driving contagion across equity markets.

Keywords: Contagion, debt, European debt crisis, financial crisis, Great Recession, trade linkages, regional linkages

JEL Classification: C51, G01, G15

Suggested Citation

Hsiao, Cody Yu-Ling and Morley, James, Debt and Financial Market Contagion (January 27, 2015). UNSW Business School Research Paper No. 2015-02. Available at SSRN: https://ssrn.com/abstract=2562121 or http://dx.doi.org/10.2139/ssrn.2562121

Cody Yu-Ling Hsiao

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

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

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

James Morley (Contact Author)

University of Sydney ( email )

Rm 370 Merewether (H04)
Sydney, NSW 2006 2008
Australia

HOME PAGE: http://https://sites.google.com/site/jamescmorley/

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