Contagion in Latin America: Definitions, Measurement, and Policy Implications

38 Pages Posted: 1 Sep 2000 Last revised: 19 Oct 2010

See all articles by Kristin J. Forbes

Kristin J. Forbes

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Roberto Rigobon

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Date Written: September 2000

Abstract

This paper analyzes bond and stock markets in Latin America and uses these patterns to investigate whether contagion occurred in the 1990's. It defines shift-contagion' as a significant increase in cross-market linkages after a shock to one country or region. Several coin-toss examples and a simple model show that the standard tests for contagion are biased due to the presence of heteroscedasticity, endogeneity, and omitted-variable bias. Recent empirical work which addresses these problems finds little evidence of shift-contagion during a range of crisis periods. Instead, this work argues that many countries are highly interdependent' in all states of the world and the strong cross-country linkages which exist after a crisis are not significantly different than those during more stable periods. These findings have a number of implications for Latin America.

Suggested Citation

Forbes, Kristin J. and Rigobon, Roberto, Contagion in Latin America: Definitions, Measurement, and Policy Implications (September 2000). NBER Working Paper No. w7885, Available at SSRN: https://ssrn.com/abstract=240427

Kristin J. Forbes (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

Room E62-416
Cambridge, MA 02142
United States
617-253-8996 (Phone)

HOME PAGE: http://web.mit.edu/kjforbes/www

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Roberto Rigobon

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E52-447
Cambridge, MA 02142
United States
617-258-8374 (Phone)
617-258-6855 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
68
Abstract Views
1,691
rank
401,037
PlumX Metrics