Re-examining the Contagion Channels of Global Financial Crises: Evidence from the Twelve Years since the US Subprime Crisis

Abstract

This study examines the contagion of the US subprime crisis across the world by focusing on four transmission mechanisms: macroeconomic fundamentals, political similarities, international trade and financial linkages. Using spatial analysis and a sample of 36 countries from 2002 to 2018, we find that all four contagion channels contribute to the rapid spread of financial crises around the world, with international trade and financial linkages playing the most prominent roles. Countries with higher inflation and domestic credit or lower exchange rates and current accounts tend to suffer more from financial crises.