International Contagion : Implications for Policy
The authors try to identify and evaluate the public policy implications of financial crises. In this model, financial contagion can be driven by a combination of fundamentals and by self-fulfilling market expectations. The model allows the authors...
| Main Authors: | , |
|---|---|
| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2000/03/437907/international-contagion-implications-policy http://hdl.handle.net/10986/19845 |
| Summary: | The authors try to identify and evaluate
the public policy implications of financial crises. In this
model, financial contagion can be driven by a combination of
fundamentals and by self-fulfilling market expectations. The
model allows the authors to identify different notions of
contagion, especially the distinction between
"monsoonal effects", "spillovers", and
"switchers between equilibria". They discuss both
domestic and international policy options. Domestic
policies, they say, should be aimed at reducing financial
fragility - that is, reducing unnecessary short-term debt
commitments. With explicit commitments, the maturity of
external debts should be lengthened. With implicit
commitments, such as private liability guarantees, they
emphasize limiting or eliminating such guarantees, to
improve an economy's international liquidity and reduce
its exposure to contagion. Internationally, they stress the
need for improving financial standards, which makes it
easier to assess when a country is subject to different
kinds of contagion. The effectiveness of international
rescue packages depends on the kind of contagion to which a
country is exposed. Implications: the international
community should help those countries that are already
helping themselves. |
|---|