Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/129704
Authors: 
Ahnert, Toni
Bertsch, Christoph
Year of Publication: 
2015
Series/Report no.: 
Sveriges Riksbank Working Paper Series 294
Abstract: 
We propose a novel theory of financial contagion. We study global coordination games of regime change in two regions with an initially uncertain correlation of regional fundamentals. A crisis in region 1 is a wake-up call to investors in region 2 that induces a re-assessment of local fundamentals. Contagion after a wake-up call can occur even if investors learn that fundamentals are uncorrelated and common lender effects or balance sheet linkages are absent. Applicable to currency attacks, bank runs, and debt crises, our theory of contagion is supported by existing evidence and generates a new testable implication for empirical work.
Subjects: 
contagion
fundamental re-assessment
wake-up call
global games
financial crisis
heterogeneous priors
information choice
disagreement
JEL: 
D82
F3
G01
Document Type: 
Working Paper

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