The Unholy Trinity of Financial Contagion

By Graciela L. Kaminsky, Carmen M. Reinhart, C. Végh. 2003

676 citations recorded by the source corpus.

Over the last 20 years, some financial events, such as devaluations or defaults, have triggered an immediate adverse chain reaction in other countries -- which we call fast and furious contagion. Yet, on other occasions, similar events have failed to trigger any immediate international reaction. We argue that fast and furious contagion episodes are characterized by "the unholy trinity": (i) they follow a large surge in capital flows; (ii) they come as a surprise; and (iii) they involve a leveraged common creditor. In contrast, when similar events have elicited little international reaction, they were widely anticipated and took place at a time when capital flows had already subsided.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/82afd80a7a0a1ccfdc64d5e76669ab19a6159093

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Citations in the corpus

Economic growth and currency crisis: A real exchange rate entropic approach (2005, background): “For a complete list of date and crisis originating countries see for example table 1 and 2 in Kaminsky et al. (2003) or appendix B in Pérez (2005).”
Bank/Sovereign Risk Spillovers in the European Debt Crisis (2012, result): “This relates to studies such as Kiyotaki and Moore (2005) and Kaminsky, Reinhart, and Vegh (2003), who describe how negative shocks in one market can directly a¤ect collateral values or cash ows associated with securities in other markets.”
Financial Sector Linkages and the Dynamics of Bank and Sovereign Credit Spreads (2014, background): “A spillover mechanism is described in Kaminsky et al. (2003) who argue that a crisis of one country may spill into other countries in the presence of a “ large common creditor ” who in the face of losses in one country has to delever positions in other countries.”
Emerging Market Spread Compression: Is it Real or is it Liquidity? (2008, background): “11 Kaminsky et al. (2003) and Sy (2002) also refer to the importance of outlooks in their analysis of the spreads.”
Asset Prices and Exchange Rates (2007, neutral): “Kaminsky and Reinhart (2000) , Claessens, Dornbusch, and Park (2001), Kaminsky, Reinhart, and V´egh (2003).”
The subprime credit crisis and contagion in financial markets (2010, background): “Important recent papers on contagion include Allen and Gale (2000), Kyle and Xiong (2001), Kodres and Pritsker (2002), Kiyotaki and Moore (2002), Kaminsky, Reinhart, and Vegh (2003), Allen and Gale (2004), Brunnermeier and Pedersen (2005, 2009), and many others.”
The Role of Portfolio Constraints in the International Propagation of Shocks (2008, background): “3See Kaminsky, Reinhart, and Végh (2003) for a survey. harder as such tests require an asset pricing model.”
Volatility Spillovers and Contagion from Mature to Emerging Stock Markets (2008, neutral): “1 Karolyi (2003) and Pericoli and Sbracia (2003) provide comprehensive surveys.”
Financial Regulation, Financial Globalization and the Synchronization of Economic Activity (2009, neutral): “In developing countries, credit supply contractions may be more binding for firms (as shown, for example, by Paravisini (2008) for Argentina; Khwaja and Mian (2008) for Pakistan, Paravisini, Rappoport, Schnabl, and Wolfenzon (2010) for Peru; and Kalemli-Ozcan, Kamil, and Villegas-Sanchez for 6 Latin”
Imperfect Competition, Information Heterogeneity, and Financial Contagion (2007, neutral): “Conversely, autarkic economies are seldom deemed likely to experience contagion effects [Kaminsky, Reinhart, and Vegh (2003)].”