Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/73357
Authors: 
Koehler-Geib, Fritzi
Year of Publication: 
2007
Series/Report no.: 
BGPE Discussion Paper 34
Abstract: 
This paper analyzes the impact of uncertainty on the spread of stock market crises, both theoretically and empirically. The effect of uncertainty about the fundamentals on investment decisions is an important cause of financial crises propagating across countries. Firstly, a coordination game on investment illustrates the increasing effect of a surprise crisis in one country on the probability of a crisis in a second country through higher uncertainty there. An anticipated initial crisis generates the opposite effect. Secondly, these theoretical predictions are tested empirically. Fixed effects panel estimations validate the impact of the initial crisis on uncertainty in potentially-affected countries. Subsequently, probit estimations confirm the positive impact of uncertainty on the crisis probability in the affected economy. The results are robust across various specifications.
Subjects: 
Capital Flows
Government debt
Sudden Stops
Global Games
Coordination Failure
JEL: 
C72
D82
D84
F21
F32
F34
F41
Document Type: 
Working Paper

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