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Interdependence and Contagion in Global Asset Markets


  • We are grateful for comments received at a presentation of the paper at the European Central Bank (ECB) in October 2011, in particular from Alexander Chudik, Michael Ehrmann, Marcel Fratzscher and Roland Straub, as well as an anonymous referee of the ECB Working Paper Series. We also acknowledge extremely useful comments received at a presentation of the paper at the INFINITI conference at Trinity College Dublin in June 2012. The views expressed in this paper are those of the authors and do not necessarily reflect those of the ECB or the International Monetary Fund.


We assess interdependence and contagion across three asset classes (bonds, stocks, and currencies) for over 60 economies over the period 1998–2011. Using a global VAR, we test for changes in the transmission mechanism—both within and cross-market changes—during periods of global financial turbulence. Contagion effects within-market are notable in Latin American and Emerging Asian equities. In addition, in times of financial crisis, we find that US equity shocks lead to risk aversion by investors in equities and currencies globally and in some emerging market bonds. Euro area shocks are significant mainly within the bond market.

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