Working Paper: NBER ID: w9019
Authors: Michael D. Bordo; Antu Panini Murshid
Abstract: In this paper we compare various characteristics of the cross-country transmission of shocks in the financial markets of both advanced and emerging countries during two periods of globalization -- the pre-World War I classical gold standard era, 1880-1914, and the post-Bretton Woods era, 1975-2000. Based on principal components analysis on monthly spreads on long-term sovereign bond yields and on an EMP measure of currency crises, an index of global stress, and impulse response functions from VARs estimated using weekly data on short-term interest rates, we conclude that financial market shocks were more globalized before 1914 compared to the present. We postulate that this difference in systemic stability between the two eras of globalization reflects factors such as strong cross-country interdependence fostered through links to gold, the growing financial maturity of advanced countries, and the widening of the center to include a more diverse group of countries spanning several regions.
Keywords: No keywords provided
JEL Codes: F20; F31; N20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| financial shocks (F65) | globalized financial market shocks (F65) |
| cross-country interdependence (F55) | financial stability (G28) |
| cross-country interdependence (F55) | international comovement in bond yield spreads (G15) |
| advanced countries (O57) | emerging markets financial distress communication (F65) |
| pre-1914 era (N93) | likelihood of a global crisis (F65) |
| today's advanced countries (O57) | weaker transmission dynamics to emerging markets (F69) |
| emerging markets vulnerabilities (F65) | regional crises (F51) |