Crisis transmission: Evidence from the debt, tequila, and Asian flu crises

This article analyzes how external crises spread across countries. The auth ors analyze the behavior of four alternative crisis indicators in a sample of 20 countries during three well-known crises: the 1982 debt crisis, the 1 994 Mexican crisis, and the 1997 Asian crisis. The objective is twofold: to revisit the transmission channels of crises, and to analyze whether capita l controls, exchange rate flexibility, and debt maturity structure affect t he extent of contagion. The results indicate that there is a strong neighbo rhood effect. Trade links and similarity in precrisis growth also explain ( to a lesser extent) which countries suffer more contagion. Both debt compos ition and exchange rate flexibility to some extent limit contagion, whereas capital controls do not appear to curb it.