Currency crises, trade and geography: spatial dimensions of contagion

Abstract

Using spatial econometric techniques to decompose the magnitude of contagion for currency crises, currency stabilities and exchange market pressure, I estimate the extent to which shocks in a country’s exchange market can affect other countries’. There is a consensus among researchers on trade and geography as possible channels. However, while trade linkages have been investigated empirically, geographic linkages have not. This study help explain why, during crises, some geographic regions are affected while others are not. I also find that contagion is not only crises phenomenon; while trade spreads currency crises, it has a much larger positive spillover during strong and stable currency periods.