Currency crisis contagion and the identification of transmission channels

Using quarterly data (1960-1998) for a set of 37 advanced and emerging market economies we find that countries face currency crises because of unsustainable macrocconomics fundamentals and contagion. In most cases considered, contagion works via the trade channel. In addition, the estimation results reveal that the probability of a crisis in a given country increases as the number of its neighboring countries in crisis increases implying the presence of neighborhood effects in the contagious spread of crisis. Our results also lend limited support to the notion that there is some contagion through capital markets. (C) 2007 Elsevier Inc. All rights reserved.