Financial Crises Propagation

Abstract

This chapter examines crisis propagation mechanisms to the Southeast European exchange-rate markets during the 1998 Russian crisis and the Turkish crisis of 2001. It focuses on whether and how the crises spread to these markets after interdependencies and common external shocks are accounted for. Results for Albania, Bulgaria and Croatia are presented and compared. Understanding the propagation mechanisms of crises to these countries and the reaction of these markets to such shocks in comparison to trading partners and other countries within Europe is an important issue in the context of their potential accession to the European Monetary Union and the adoption of inflation targeting frameworks. It is found that Albania has relatively isolated financial markets in comparison with the other countries in the sample and is not affected by contagion, while Croatia is mostly affected by the crises directly and indirectly.

Citation

Sojli, E. and Fry, R. (2011), "Financial Crises Propagation", Batten, J.A. and Szilagyi, P.G. (Ed.) The Impact of the Global Financial Crisis on Emerging Financial Markets (Contemporary Studies in Economic and Financial Analysis, Vol. 93), Emerald Group Publishing Limited, Leeds, pp. 495-522. https://doi.org/10.1108/S1569-3759(2011)0000093018