Contagion, Spillover and Interdependence

23 Pages Posted: 3 Feb 2017

See all articles by Roberto Rigobon

Roberto Rigobon

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

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Date Written: November 15, 2016

Abstract

This paper reviews the empirical literature on international spillovers and contagion. Theoretical models of spillover and contagion imply that the reduced form observable variables suffer from two possible sources of bias: endogeneity and omitted variables. These econometric problems in combination with the heteroskedasticity that plagues the data produces time varying biases. Several empirical methodologies are evaluated from this perspective: non-parametric techniques such as correlations and principal components, as well as parametric methods such as OLS, VAR, event studies, ARCH, Non-linear regressions, etc. The paper concludes that there is no single technique that can solve the full fledge problem and discusses three methodologies that can partially address some of the questions in the literature.

Keywords: identification, heteroskedasticity, contagion

JEL Classification: C30, F32, C10

Suggested Citation

Rigobon, Roberto, Contagion, Spillover and Interdependence (November 15, 2016). ECB Working Paper No. 1975, Available at SSRN: https://ssrn.com/abstract=2910863

Roberto Rigobon (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

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National Bureau of Economic Research (NBER) ( email )

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