NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Contagion and Trade: Why Are Currency Crises Regional?

Reuven Glick, Andrew K. Rose

NBER Working Paper No. 6806
Issued in November 1998

Currency crises tend to be regional; they affect countries in geographic proximity. This suggests that patterns of international trade are important in understanding how currency crises spread, above and beyond any macroeconomic phenomena. We provide empirical support for this hypothesis. Using data for five different currency crises (in 1971, 1973, 1992, 1994, and 1997) we show that currency crises affect clusters of countries tied together by international trade. By way of contrast, macroeconomic and financial influences are not closely associated with the cross-country incidence of speculative attacks. We also show that trade linkages help explain cross-country correlations in exchange market pressure during crisis episodes, even after controlling for macroeconomic factors.

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Document Object Identifier (DOI): 10.3386/w6806

Published: Journal of International Money and Finance, Vol. 18, no. 4 (August 1999): 603-617

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