Contagion and Trade: Explaining the Incidence and Intensity of Currency Crises

Currency crises tend to affect countries in geographic proximity. This suggests that regional patterns of international trade are important in understanding how currency crises spread, above and beyond any macroeconomic phenomena. Using data for five different currency crises (in 1971, 1973, 1992, 1994, and 1997) we show that currency crises affect countries tied together by international trade. By way of contrast, macroeconomic and financial influences are not closely associated with the cross-country incidence of speculative attacks. We also show that trade linkages help explain the cross-country intensity of exchange market pressure during crisis episodes, even after controlling for macroeconomic factors.