Crisis Transmission: Global Financial Crisis

Abstract

The aim of this paper is to explore, empirically, the channels of crisis transmission with regard to the Global financial crisis. EMP-based crisis proxy is used for eight countries, which include Argentina, Brazil, Canada, Indonesia, Japan, Korea, Mexico and Russia. The period considered for estimation was Q1 2001 – Q2 2010. Based on the Vector AutoRegression (VAR) and Ordinary Least Squares (OLS) specification, it is concluded that the competitive devaluation effect did not play significant role in the transmission of the crisis. Wake-up call and Cash in effects were the major contributing transmission channels for Global financial crisis. Indonesia, Japan and Russia showed signs of wake-up call effect, whereas Brazil and Japan recorded cash-in effect.