Economic contagion effect

3. CONTAGION
EFFECTS
( Types &
Causes )

4. Meaning
Group
CONTAGION
Members
Refers to the spread of
Clinton D’souza
EFFECTS
market disturbances
Sagar Mishra
Dennis the likelihood
Contagion isChicharito
( Types &
ofPinto
significant economic
changes.
Sourabh Parab
Causes )
Shahrukh Shaik
Shahrukh Sayyed

5. Introduction
Meaning
This can refer
Strikes across firms or
to either economic
industriesthe spread of
Refers to or
booms
The spreadcrises.
economic of wage
market disturbances
increases secured by labor
unions to non-union
Contagion is the likelihood
sectors.
of significant economic
The spread of business
changes.
fluctuations across
economies.
The spread of speculative
trading across individuals.

6. Introduction
Types of
Definition
Strikes across firms or
The Contagion
adverse consequences
industries to Masson,
According actions that
of onespread of wage
firm's
The
Contagion may be classified
can spread throughout
increases secured by labor
intoindustry in which it
the 2 categories:
unions to non-union
Spillovers
operates.
sectors.
The spread of business
Pure contagion
fluctuations across
economies.
The spread of speculative
trading across individuals.

7. Spillovers
Types of
Spillovers
through trade
Contagion
It refers to the situation
links..
Accordingcrises formground
to Masson,
where a direct in a of link is
The most
Contagion may trade.
through bilateral be classified
zero country spills over
into 2deterioration of
into categories:
Spillovers markets this link
For emerging in other
fundamentals
is not very significant.
countries.
Pure contagion

8. Spillovers through
Spillovers
Pure Contagion
financial market
through trade
Pure contagion refers to those
linkages by a crises
links..
crises triggered
It is an important sources of
The most direct formcannot be
elsewhere but which of link is
spillovers at least for bank
explained by changes in
through bilateral trade.
lending.
fundamentals or any sort of
Losses in 1 country can lead
For emerging spillovers this link
“mechanical” markets
banks to sell off assetsare other
discussed significant. in
is not very above, but
countries.
possibly caused by shifts in
Lack of liquidity is or changes
market sentiments another
reason why a crises in 1to
in interpretation given market
may leadinformation.
existing financial
intermediaries to liquidate
other emerging market assets.

9. Pure Contagion
Causes of
Pure contagion refers to those
Contagion
crises triggered by a crises
elsewhere but which cannot can
The causes of contagion be
explained by conceptually into
be divided changes in
2 categories:
fundamentals or any sort of
•The First Category-
“mechanical” spillovers
discussed above, but are
Emphasizes spillovers
possibly caused by shifts in
market sentiments or changes
•The Second Category-
in interpretation given to
existing information. Crises
Involves a Financial

10. Involves of
Causes a
Emphasizes
Financial Risk
spillovers
Contagion
… that is notcontagion can be
The causes of linkedthe
It is that result from to
observed changes in into 2
normal interdependence
divided conceptually
macroeconomics or other
among market economies.
categories:
fundamentals.
•The First Category- Emphasizes
Contagion arises when a co-
spillovers
movement occurs.
This interdependence means
A crises in 1 countryof a lead
•The Second Category-may
that shocks, whether Involves
investors to withdraw theirbe
global or local nature, can
a Financial Crises
investments from many
transmitted across countries
markets in other countries.
because of their real &
financial linkages.

11. Involves a
Financial Risk
… that is not linked to
observed changes in
macroeconomics or other
fundamentals.
Contagion arises when a co-
movement occurs.
A crises in 1 country may lead
investors to withdraw their
investments from many markets
in other countries.