Contagion: Can It Occur Without Trading Relations?

52 Pages Posted: 31 Oct 2019

See all articles by Gopal K. Basak

Gopal K. Basak

Indian Statistical Institute, Kolkata

Pranab Kumar Das

Centre for Studies in Social Sciences, Calcutta

Allena Rohit

Indian Statistical Institute, Kolkata

Date Written: July 15, 2019

Abstract

The paper explains origin of financial crisis in one country and its spread to other countries - contagion, in a multi country dynamic model of international capital inflow. The origin of crisis is rooted in this model in the common international loan market; thus crisis can occur even when the countries are not interconnected via bilateral or multilateral trade and commerce. The structure can explain various episodes of financial crisis in a common framework. A shift in the risk perception of loan repayment for a particular country is capable of generating a stronger contagion effect than a general shift in risk perception of the lenders. The model can usefully be employed to address the policy issues pertaining to capital inflow from the developed countries to developing countries.

Keywords: Contagion, International Capital Flow, Financial Crisis, Dynamic Programming Principle, Portfolio Theory

JEL Classification: C61, E44, E47, F32, F34, F42, G11

Suggested Citation

Basak, Gopal K. and Das, Pranab Kumar and Rohit, Allena, Contagion: Can It Occur Without Trading Relations? (July 15, 2019). Available at SSRN: https://ssrn.com/abstract=3473676

Gopal K. Basak

Indian Statistical Institute, Kolkata ( email )

203 B.T. Road
Kolkata, West Bengal 700108
India

Pranab Kumar Das (Contact Author)

Centre for Studies in Social Sciences, Calcutta ( email )

R 1, B.P. Township
Kolkata, West Bengal, India
Kolkata, West Bengal 700094
India
+91 33 2462-5795, -6183 (Phone)

HOME PAGE: http://www.cssscal.org/faculty_pranab_kumar_das.php

Allena Rohit

Indian Statistical Institute, Kolkata ( email )

203 B.T. Road
Kolkata, West Bengal 700108
India

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