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International Trade and Economic Development$
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Rajat Acharyya and Saibal Kar

Print publication date: 2014

Print ISBN-13: 9780199672851

Published to Oxford Scholarship Online: September 2014

DOI: 10.1093/acprof:oso/9780199672851.001.0001

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Contagion of Crisis and Concluding Remarks

Contagion of Crisis and Concluding Remarks

(p.288) 12 Contagion of Crisis and Concluding Remarks
International Trade and Economic Development

Rajat Acharyya

Saibal Kar

Oxford University Press

The currency crisis, which is the subject matter of discussion in this chapter, is defined as a forced change in parity, abandonment of a pegged exchange rate, or an international rescue. The literature suggests that crises often come in waves, with a new one breaking out before the recovery from its predecessor is complete. The chapter also discusses the role of international trade in crisis contagion. It is argued that the local shocks, such as a crisis in one economy, can affect the economic fundamentals of other countries through trade links and currency devaluations. By contagion, a major trading partner of a country that has been exposed to financial crisis could also experience declining asset prices and large capital outflows. In view of the five year crisis between 2008 and 2013, this chapter adds a lot of contemporary flavour to what has been discussed thus far.

Keywords:   financial crisis, contagion, currency devaluation, herd behaviour, East-Asian crisis, capital account, policy

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