TY  - JOUR
AU  - Favero,Carlo A.
AU  - Giavazzi,Francesco
TI  - Looking for Contagion: Evidence from the ERM
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7797
PY  - 2000
Y2  - July 2000
UR  - http://www.nber.org/papers/w7797
L1  - http://www.nber.org/papers/w7797.pdf
N1  - Author contact info:
Francesco Giavazzi
Universita' Bocconi and IGIER
Via Guglielmo Rontgen, 1
Milan 20136
ITALY
Tel: 0039-02-5836-3304
Fax: 0039-02-5836-3302
E-Mail: francesco.giavazzi@unibocconi.it
AB  - 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.
ER  -