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Measuring contagion and interdependence with a Bayesian time-varying coefficient model: An application to the Chilean FX market during the Argentine crisis

Measuring contagion and interdependence with a Bayesian time-varying coefficient model: An... We use a Bayesian time-varying coefficient model to measure contagion and interdependence, and we apply it to the Chilean FX market during the 2001 Argentine crisis. The proposed framework works in the joint presence of heteroskedasticity and omitted variables, without knowledge of the crisis timing prior to the empirical analysis. It can distinguish between contagion and interdependence, as well as between unusually strong or weak market comovements. In a “natural” experiment based on our application, we find that the proposed framework works well in practice. In the application, we find evidence of some contagion from Argentina and some interdependence with Brazil. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Econometrics Oxford University Press

Measuring contagion and interdependence with a Bayesian time-varying coefficient model: An application to the Chilean FX market during the Argentine crisis

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References (18)

Publisher
Oxford University Press
Copyright
Copyright © The Author 2007. Published by Oxford University Press.
Subject
Articles
ISSN
1479-8409
eISSN
1479-8417
DOI
10.1093/jjfinec/nbm003
Publisher site
See Article on Publisher Site

Abstract

We use a Bayesian time-varying coefficient model to measure contagion and interdependence, and we apply it to the Chilean FX market during the 2001 Argentine crisis. The proposed framework works in the joint presence of heteroskedasticity and omitted variables, without knowledge of the crisis timing prior to the empirical analysis. It can distinguish between contagion and interdependence, as well as between unusually strong or weak market comovements. In a “natural” experiment based on our application, we find that the proposed framework works well in practice. In the application, we find evidence of some contagion from Argentina and some interdependence with Brazil.

Journal

Journal of Financial Econometrics – Oxford University Press

Published: Mar 8, 2007

Keywords: Argentine crisis Chile contagion interdependence omitted variables time-varying coefficient models

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