Identifying the Role of Contagion in Currency Crises with Markov-Switching Models
This paper analyzes the role of contagion in the currency crises in emerging markets during the 1990s. It employs a Markov-switching model to conduct a systematic comparison of three distinct causes of currency crises: contagion, weak economic fundamental
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Michael Frenkel Alexander Karmann Bert Scholtens Editors
Sovereign Risk and Financial Crises With 30 Figures and 40 Tables
~Springer
Prof. Dr. Michael Frenkel WHU Koblenz Chair of Macroeconomics and International Economics Burgplatz 2 56179 Vallendar Germany [email protected] Prof. Dr. Alexander Karmann Dresden University of Technology Department of Economics Chair of Economics, esp. Monetary Economics MommsenstraBe 13 01062 Dresden Germany Alexander.Karmann@mailbox. tu-dresden.de Ass. Prof. Bert Scholtens University of Groningen Department of Finance Landleven 5 9747 AD Groningen The Netherlands [email protected]
ISBN 978-3-642-06080-9 ISBN 978-3-662-09950-6 (eBook) DOI 10.1007/978-3-662-09950-6 Cataloging-in-Publication Data applied for Library of Congress Control Number: 2004108251. This work is subject to copyright. All rights are reserved, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilm or in any other way, and storage in data banks. Duplication of this publication or parts thereof is permitted only under the provisions of the German Copyright Law of September 9, 1965, in its current version, and permission for use must always be obtained from Springer-VerlagBerlinHeidelbergGmbH.Violations are liable for prosecution under the German Copyright Law. springeronline.com © Springer-Verlag Berlin Heidelberg 2004 Originally published by Springer-Verlag Berlin Heidelberg New York in 2004 Softcover reprint of the hardcover 1st edition 2004
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Introduction Sovereign risk and financial crises are key factors in international economic developments that have recently attracted a lot of attention. In particular, the Asian crisis in the late 1990s caused a surge in interest. Before this crisis, Asian economies were heralded as the examples of responsible and successful economic development par excellence. They showed impressive growth figures; they hosted fast-growing multinational enterprises; they developed into international financial centers. However, the Asian crisis revealed that their fmancial systems were much more fragile than had been assumed. The foreign exchange rates tumbled and the sovereign debt of Asian countries was downgraded quickly and massively. This event once again revealed that, in capitalist economies, financial crises are the rule rather than the exception and international public debt agreements are contingent claims rather than riskless assets. In a world of increasing economic interdependencies, the issues of financial crises and country default are of prominent importanc
