International crises,instability periods and contagion: the case of the ERM |
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Authors: | Emanuele Bacchiocchi Marta Bevilacqua |
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Institution: | (1) Department of Economics, University of Milan, Via Conservatorio 7, 20122 Milan, Italy |
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Abstract: | In this article we propose a two step procedure for modeling the propagation of financial shocks. The first step consists
in the estimation, by means of SWARCH models, of the conditional probability of being in a period of high volatility, while
in the second step such indicators are included in a structural simultaneous equations models for interdependences among different
countries. The results show that episodes of financial crisis effectively happened during periods of high volatility and that
such measures of instability are important in explaining the propagation of devaluation expectations between six European
Countries during the ERM period.
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Keywords: | Contagion SWARCH ERM |
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