“…7 One could think, for example, of the budget or current account deficits exceeding a sustainable level or non-performing loans in the banking system running out of control. 8 A useful survey of this literature can be found in Flood and Marion (1999).…”
Section: Macroeconomic Forecasts Early Warning Indicators and Stressmentioning
“…7 One could think, for example, of the budget or current account deficits exceeding a sustainable level or non-performing loans in the banking system running out of control. 8 A useful survey of this literature can be found in Flood and Marion (1999).…”
Section: Macroeconomic Forecasts Early Warning Indicators and Stressmentioning
“…17 For more details, refer to Feridun (2007), who provides a useful summary that also includes several indicators describing banking sector vulnerability. See also Flood and Marion (1998).…”
“…Hence, we are forced to search for the joint set of fundamentals, which allows each bivariate model to reach convergence, and the included set of fundamentals may vary for each pair. 26 See Flood and Marion (1999).…”
This paper uses seemingly unrelated probit techniques to separate the transmission of a crisis due to broadly defined macroeconomic interdependence from contagion due to herding, avoiding some of the caveats of the more traditional cross-correlation approach. We find that pure contagion occurred in a limited number of country pairs generally belonging to the same region. A reduction in speculative pressure can also be identified between countries in different regional blocks. This seems to suggest that after an initial crisis episode, investors tend to discriminate on the basis of location and common macroeconomic weakness or perceived similarity
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