Transmission Process of Financial Crises: Interdependence and Contagion Effects Across Turkey, Brazil, Russia and the Middle East Countries

Transmission Process of Financial Crises: Interdependence and Contagion Effects Across Turkey, Brazil, Russia and the Middle East Countries

The first aim of the paper is to investigate the interdependence and/or contagion effect of an economic crisis across Turkey, Brazil and Russia as well as some Gulf Cooperation Council countries; Kuwait, Oman, Qatar, and Morocco covering the period from August 2004 to March 2012. The second aim is to present an alternative view on the transmission process of financial crises across the economies via any possible interaction channel between the interdependence effect and contagion. An exchange market pressure index and the outlier test of Favero and Giavazzi (2002) are used in this paper. The estimation results reveal that there are fifteen cases in which the interdependence and the contagion effects could be related to each other. Consequently, it can be suggested that the policy-makers are less likely to prevent the financial crises experienced outside being transmitted to their own country; even if they could exactly predict that, the interdependence effect exists.

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