This Article Full Text (PDF) References Alert me when this article is cited Alert me if a correction is posted Services Email this article to a friend Similar articles in this journal Alert me to new issues of the journal Add to Saved Citations Download to citation manager Add to My Marked Citations Citing Articles Citing Articles via Google Scholar Google Scholar Articles by Dungey, M. Articles by Martin, V. L. Search for Related Content Social Bookmarking                   What's this?

A Multifactor Model of Exchange Rates with Unanticipated Shocks: Measuring Contagion in the East Asian Currency Crisis

Centre for Applied Macroeconomic Analysis, Australian National University, Canberra, mardi.dungey{at}anu.edu.au

Vance L. Martin

University of Melbourne

A multifactor model of exchange rates is proposed which allows for both time-dependent common and idiosyncratic factors, as well as unanticipated shocks across currency markets. This latter feature of the model is exploited in the empirical application to measure the contribution of contagion to the volatilities of exchange rates during the East Asian currency crisis. The empirical results show evidence of significant contagion. The contribution of contagion is estimated at 9 per cent of total volatility for the Thai baht and 46 per cent for the South Korean won. Indonesia is found to be the most affected in terms of basis points.

Key Words: Latent factor • volatility • indirect estimation • currency crisis • contagion

CiteULike    Connotea    Del.icio.us    Digg    Reddit    Technorati    What's this?