The Uncertainty Channel of Contagion
The 2007 subprime crisis in the United States has triggered a succession of financial crises around the globe, reigniting interest in the contagion phenomenon. Not all crises, however, are contagious. This paper models a new channel of contagion wh...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
2012
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| Subjects: | |
| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20090716083131 http://hdl.handle.net/10986/4188 |
| Summary: | The 2007 subprime crisis in the United
States has triggered a succession of financial crises around
the globe, reigniting interest in the contagion phenomenon.
Not all crises, however, are contagious. This paper models a
new channel of contagion where the degree of anticipation of
crises, through its impact on investor uncertainty,
determines the occurrence of contagion. Incidences of
surprise crises lead investors to doubt the accuracy of
their information-gathering technology, which endogenously
increases the probability of crises elsewhere. Anticipated
crises, instead, have the opposite effect. Importantly, this
channel is empirically shown to have an independent effect
beyond other contagion channels. |
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