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No. 498: A Dynamic Factor Analysis of Financial Contagion in Asia

Andrea Cipollini , Queen Mary, University of London
George Kapetanios , Queen Mary, University of London

July 1, 2003

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Abstract

In this paper we compared the performance of country specific and regional indicators of reserve adequacy in predicting, out of sample, the balance of payment crisis affecting the South East Asian region during the 1997-98 period. A Dynamic Factor method was used to retrieve reserve adequacy indicators. The empirical findings suggest clear evidence of financial contagion.

J.E.L classification codes: C32, C51, F34

Keywords:Financial contagion, Dynamic factor model

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