Mody, Ashoka and Taylor, Mark P. (2003) Common vulnerabilities. Discussion Paper. London: Centre for Economic Policy Research (Great Britain). Discussion paper (Centre for Economic Policy Research (Great Britain)) (No.375).
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We pursue the idea that a region presents a common ‘prospectus’ to investors and lenders. Specifically, we explore whether investors respond to regional developments, rather than to country-specific fundamentals. Such behaviour may be appropriate where regions are identified by common development strategies and economic policies, and the costs of country-specific analysis exceed the returns. Using dynamic factor analysis, we estimate a common regional component of the exchange market pressure index (EMPI) as a measure of regional vulnerability. We find that a high level of regional external liabilities and exuberance in domestic stock and credit markets generates regional vulnerabilities, which are heightened when the US High Yield Index is also on the rise. Country-specific movements of the EMPI are also explained by the same regional indicators rather than by the country-specific components of these indicators.
|Item Type:||Working or Discussion Paper (Discussion Paper)|
|Subjects:||H Social Sciences > HG Finance|
|Divisions:||Faculty of Social Sciences > Economics|
|Library of Congress Subject Headings (LCSH):||Currency crises, Contagion (Social psychology), Factor analysis, Risk perception, Investment analysis|
|Series Name:||Discussion paper (Centre for Economic Policy Research (Great Britain))|
|Publisher:||Centre for Economic Policy Research (Great Britain)|
|Place of Publication:||London|
|Official Date:||February 2003|
|Number of Pages:||35|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
Agénor, Pierre-Richard, Marcus Miller, David Vines, and Axel Weber (eds.) (1999) The Asian Financial Crisis: Causes, Contagion and Consequences. Cambridge, New York and Melbourne: Cambridge University Press.
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