Fatal Attraction: A New Measure of Contagion

21 Pages Posted: 29 Jan 2006

See all articles by Tamim Bayoumi

Tamim Bayoumi

International Monetary Fund (IMF); Centre for Economic Policy Research (CEPR)

Giorgio Fazio

affiliation not provided to SSRN

Manmohan Kumar

International Monetary Fund (IMF) - Research Department

Ronald MacDonald

University of Strathclyde in Glasgow - Department of Economics; Government of New Zealand - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: April 2003

Abstract

This paper proposes a new measure of contagion that is good at anticipating future vulnerabilities. Building on previous work, it uses correlations of equity markets across countries to measure contagion, but in a departure from previous practice it measures contagion using the relationship of these correlations with distance. Also in contrast to previous work, our test is good at identifying periods of positive contagion, in which capital flows to emerging markets in a herd-like manner, largely unrelated to fundamentals. Identifying such periods of fatal attraction is important as they provide the essential ingredients for subsequent crises and rapid outflows of capital.

Keywords: Contagion, international capital flows, emerging market crises

JEL Classification: F32, F34, O16

Suggested Citation

Bayoumi, Tamim and Fazio, Giorgio and Kumar, Manmohan and MacDonald, Ronald R., Fatal Attraction: A New Measure of Contagion (April 2003). IMF Working Paper, Vol. , pp. 1-21, 2003. Available at SSRN: https://ssrn.com/abstract=879156

Tamim Bayoumi (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-6333 (Phone)
202-623-4795 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Giorgio Fazio

affiliation not provided to SSRN

No Address Available

Manmohan Kumar

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

700 19th Street NW
Washington, DC 20431
United States
202-623-7771 (Phone)
202-589-7771 (Fax)

Ronald R. MacDonald

University of Strathclyde in Glasgow - Department of Economics ( email )

100 Cathedral Street
Glasgow G4 0LN
United Kingdom
+44 141 548 3861 (Phone)

Government of New Zealand - Department of Economics

2 The Terrace
P.O. Box 2498
Wellington
New Zealand

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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