Information Acquisition and Financial Contagion Articles
Overview
published in
- JOURNAL OF BANKING & FINANCE Journal
publication date
- October 2008
start page
- 2136
end page
- 2147
issue
- 10
volume
- 32
Digital Object Identifier (DOI)
International Standard Serial Number (ISSN)
- 0378-4266
Electronic International Standard Serial Number (EISSN)
- 1872-6372
abstract
- This paper incorporates costly voluntary acquisition of information à la Nikitin and Smith (2007) [Nikitin, M., Smith, R.T., 2007. Information acquisition, coordination, and fundamentals in a financial crisis. Journal of Banking and Finance, in press, doi:10.1016/j.jbankfin.2007.04.031], in a framework similar to Allen and Gale (2000) [Allen, F., Gale, D., 2000. Financial contagion. Journal of Political Economy 108, 1&-33], without relying on any unexpected shock to model contagion. In this framework, contagion and financial crises are the result of information gathering by depositors, weak fundamentals and an incomplete market structure of banks. It also shows how financial systems entering a recession can affect others with apparently stronger economic conditions (contagion). Finally, this is the first paper to investigate the effectiveness of the Contingent Credit Line procedures, introduced by the IMF at the end of the nineties, as a mechanism to prevent the propagation of crises.