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Currency crisis transmission through international trade

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  • Haidar, Jamal Ibrahim

Abstract

The Eurozone recent crisis has shown how balance of payments problems in less developed European Monetary Union (EMU) member countries can affect EMU trading partners, spreading the crisis to a larger group of countries. This paper introduces a three-country dynamic general equilibrium model to analyze whether and how terms of trade effects can generate a spillover effect or a currency crisis transmission between countries. Specifically, using a two period model, it incorporates world market clearing conditions for tradables into a new theoretic model, analyzes net capital flow movements between countries, and establishes cross-border macroeconomic linkages. This paper shows how a currency crisis can transmit through the real (trade) sector channel of the economy.

Suggested Citation

  • Haidar, Jamal Ibrahim, 2012. "Currency crisis transmission through international trade," Economic Modelling, Elsevier, vol. 29(2), pages 151-157.
    • Handle: RePEc:eee:ecmode:v:29:y:2012:i:2:p:151-157
    DOI: 10.1016/j.econmod.2011.09.001
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    2. Raghavan, Mala & Devadason, Evelyn S, 2019. "How resilient is ASEAN-5 to trade shocks? Regional and global shocks compared," Working Papers 2019-04, University of Tasmania, Tasmanian School of Business and Economics.
    3. Marina Yu. Malkina & Anton O. Ovcharov, 2022. "Financial Contagion of Russian Companies from the Oil Market under the Influence of Sanctions and Pandemic Shock," Finansovyj žhurnal — Financial Journal, Financial Research Institute, Moscow 125375, Russia, issue 4, pages 8-28, August.
    4. Gani, Azmat & Al Mawali, Nasser Rashid, 2013. "Oman's trade and opportunities of integration with the Asian economies," Economic Modelling, Elsevier, vol. 31(C), pages 766-774.
    5. Mala Raghavan & Faisal Khan & Sonia Kumari Selvarajan & Evelyn S. Devadason, 2023. "Cross‐country linkages between ASEAN and non‐ASEAN‐RCEP member states: A global VAR analysis," The World Economy, Wiley Blackwell, vol. 46(6), pages 1782-1814, June.
    6. Pawan Kumar & Vipul Kumar Singh, 2023. "Examining the Time Varying Spillover Dynamics of Indian Financial Indictors from Global and Local Economic Uncertainty," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 21(1), pages 99-121, March.
    7. Thanh Cong Nguyen & Trung Hieu Le, 2024. "Financial crises and the national logistics performance: Evidence from emerging and developing countries," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(2), pages 1834-1855, April.
    8. Bhatia, Shipra & Tuteja, Divya, 2024. "Contagion and linkages across international currencies," International Review of Financial Analysis, Elsevier, vol. 94(C).
    9. Mala Raghavan & Evelyn S. Devadason, 2020. "How Resilient Is ASEAN-5 to Trade Shocks? A Comparison of Regional and Global Shocks," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 12(1), pages 93-115, January.
    10. Shen, Pei-Long & Li, Wen & Wang, Xiao-Ting & Su, Chi-Wei, 2015. "Contagion effect of the European financial crisis on China's stock markets: Interdependence and pure contagion," Economic Modelling, Elsevier, vol. 50(C), pages 193-199.
    11. Chen, Zhihua & An, Haizhong & An, Feng & Guan, Qing & Hao, Xiaoqing, 2018. "Structural risk evaluation of global gas trade by a network-based dynamics simulation model," Energy, Elsevier, vol. 159(C), pages 457-471.
    12. Jamal Ibrahim Haidar, 2012. "Sovereign Credit Risk in the Eurozone," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 13(1), pages 123-136, January.
    13. Khan, Saleheen, 2018. "Currency Crisis Transmission Through Trade Channel: Asian and Mexican Crises Revisited," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 33(4), pages 818-840.
    14. Cheng, Wenli & Zhang, Dingsheng, 2016. "How might the South be helped by Northern technology yet harmed by Northern money?," Economic Modelling, Elsevier, vol. 55(C), pages 83-91.
    15. Mala Raghavan & Faisal Khan & Evelyn S. Devadason, 2024. "Agri‐food trade channel and the ASEAN macroeconomic impacts from output and price shocks," Agricultural Economics, International Association of Agricultural Economists, vol. 55(1), pages 5-26, January.
    16. Santana-Gallego, Maria & Pérez-Rodríguez, Jorge V., 2019. "International trade, exchange rate regimes, and financial crises," The North American Journal of Economics and Finance, Elsevier, vol. 47(C), pages 85-95.
    17. Yoram Z. Haftel & Bar Nadel, 2024. "Economic crises and the survival of international organizations," The Review of International Organizations, Springer, vol. 19(4), pages 665-690, October.
    18. Jiang, Hai & Tang, Shenfeng & Li, Lifang & Xu, Fangming & Di, Qian, 2022. "Re-examining the Contagion Channels of Global Financial Crises: Evidence from the Twelve Years since the US Subprime Crisis," Research in International Business and Finance, Elsevier, vol. 60(C).
    19. Dungey, Mardi & Khan, Faisal & Raghavan, Mala, 2018. "International trade and the transmission of shocks: The case of ASEAN-4 and NIE-4 economies," Economic Modelling, Elsevier, vol. 72(C), pages 109-121.

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    More about this item

    Keywords

    International trade; General equilibrium model; Currency crisis; Contagion; Capital flows; Exchange rate movement;
    All these keywords.

    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F1 - International Economics - - Trade
    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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