NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Looking for Contagion: Evidence from the ERM

Carlo A. Favero, Francesco Giavazzi

NBER Working Paper No. 7797
Issued in July 2000
NBER Program(s):   IFM

This paper applies a full-information technique to test for the presence of contagion across the money markets of ERM member countries. We show that whenever it is possible to estimate a model for interdependence, a test for contagion based on a full information technique is more powerful. We test for the presence of contagion after having identified episodes of country-specific shocks, whose effects on other European markets are significantly different from those predictable from the estimated channels of interdependence. Using data on three-months interest rate spreads on German rates for seven countries over the period 1988-1992, we are unable to reject the null of contagion. Our evidence suggest that contagion within the ERM was a general phenomenon, not limited to a subset of weaker countries, the exception in the sample being France. Our results are mute as to the question of what lies behind these episodes of contagion; they show, however, that it is not always true that one only detects contagion when one applies poor statistical techniques.

download in pdf format
   (262 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w7797

Users who downloaded this paper also downloaded* these:
Forbes and Rigobon w7885 Contagion in Latin America: Definitions, Measurement, and Policy Implications
Eichengreen, Rose, and Wyplosz w5681 Contagious Currency Crises
Forbes and Rigobon w7267 No Contagion, Only Interdependence: Measuring Stock Market Co-movements
Eichengreen w8035 The EMS Crisis in Retrospect
Bae, Karolyi, and Stulz w7913 A New Approach to Measuring Financial Contagion
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us