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The Russian Default and the Contagion to Brazil

Author

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  • Mr. Taimur Baig
  • Mr. Ilan Goldfajn

Abstract

This paper investigates the contagion from Russia to Brazil in late 1998 under two dimensions— players involved and the timing of events. The data does not seem to reflect a compensatory liquidation of assets story by international institutional investors. It does contribute, however, to the suspicion that the contagion was triggered by foreign investors panicking from the Russian crisis, and joining local residents on their speculation against the Brazilian real. Adjusted correlations in the Brady market increase significantly during the crisis, which lends support to the view that if there was a contagion from Russia to Brazil, the most likely place of the transmission was the off-shore Brady market. Finally, the paper does not support the hypothesis that it was the liquidity crisis in mature markets, and not the Russian crisis, that timed the crisis in Brazil.

Suggested Citation

  • Mr. Taimur Baig & Mr. Ilan Goldfajn, 2000. "The Russian Default and the Contagion to Brazil," IMF Working Papers 2000/160, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2000/160
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    References listed on IDEAS

    as
    1. Ganapolsky, Eduardo J. J. & Schmukler, Sergio L., 1998. "The impact of policy announcements and news on capital markets : crisis management in Argentina during the Tequila Effect," Policy Research Working Paper Series 1951, The World Bank.
    2. Eichengreen, Barry & Rose, Andrew K & Wyplosz, Charles, 1996. "Contagious Currency Crises," CEPR Discussion Papers 1453, C.E.P.R. Discussion Papers.
    3. Taimur Baig & Ilan Goldfajn, 1999. "Financial Market Contagion in the Asian Crisis," IMF Staff Papers, Palgrave Macmillan, vol. 46(2), pages 1-3.
    4. Pierre-Richard Agénor & Joshua Aizenman, 1998. "Contagion and Volatility with Imperfect Credit Markets," IMF Staff Papers, Palgrave Macmillan, vol. 45(2), pages 207-235, June.
    5. Chinn, Menzie D., 2000. "Before the fall: were East Asian currencies overvalued?," Emerging Markets Review, Elsevier, vol. 1(2), pages 101-126, September.
    6. Glick, Reuven & Rose, Andrew K., 1999. "Contagion and trade: Why are currency crises regional?," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 603-617, August.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    WP; Brazil; Russia; market; Contagion; Exchange Rate; Off-shore Markets; stock index; U.S. dollar; Brazil regression; central bank of Brazil; Brady bond market; market investor; Stock markets; Capital flows; Currency markets; Emerging and frontier financial markets; Asia and Pacific;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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