What Drives Contagion: Trade, Neighborhood, or Financial Links?

22 Pages Posted: 29 Jan 2006

See all articles by Leonardo Hernández

Leonardo Hernández

Banco Central de Chile

Rodrigo Valdés

Central Bank of Chile; Ministry of Finance, Chile

Multiple version iconThere are 2 versions of this paper

Date Written: March 2001


This paper presents evidence on the relative importance of alternative contagion channels during the Thai, Russian, and Brazilian crises. Results show that when crises are measured by changes in sovereign bond spreads, financial competition seems to explain almost all contagion episodes. However, when crises are measured by stock market returns, trade links and neighborhood effects appear to be relevant contagion channels during the Thai and Brazilian crises, while financial competition remains the only relevant channel in the case of the Russian crisis.

Keywords: Contagion, Bond Spreads, Stock Market, Capital Flows, Crisis Transmission

JEL Classification: F30, F32, G15

Suggested Citation

Hernández, Leonardo and Valdés, Rodrigo O., What Drives Contagion: Trade, Neighborhood, or Financial Links? (March 2001). IMF Working Paper No. 01/29, Available at SSRN: https://ssrn.com/abstract=879386

Leonardo Hernández (Contact Author)

Banco Central de Chile ( email )

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Rodrigo O. Valdés

Central Bank of Chile ( email )

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Research Department
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+56 2 670 2231 (Fax)

Ministry of Finance, Chile

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