On the Measurement of the International Propagation of Shocks

48 Pages Posted: 4 Feb 2000 Last revised: 7 Aug 2022

See all articles by Roberto Rigobon

Roberto Rigobon

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

Date Written: September 1999

Abstract

In this paper I offer an alternative identification assumption that allows one to test for changing patterns regarding the international propagation of shocks when endogenous variables, omitted variables, and heteroskedasticity are present in the data. Using this methodology, I demonstrate that the propagation mechanisms of 36 stock markets remained relatively stable throughout the last three major international crises which have been associated with 'contagion' (i.e., Mexico 1994, Hong Kong 1997, and Russia 1998). These findings cast considerable doubt upon theories that suggest that the propagation of shocks is crisis contingent, and driven by endogenous liquidity issues, multiple equilibria, and political contagion. Rather, these findings would seem to support theories that identify such matters as trade, learning, and aggregate shocks as the primary transmission mechanisms in this process.

Suggested Citation

Rigobon, Roberto, On the Measurement of the International Propagation of Shocks (September 1999). NBER Working Paper No. w7354, Available at SSRN: https://ssrn.com/abstract=194673

Roberto Rigobon (Contact Author)

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

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