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Contagion, Spillover, and Interdependence
- Economía
- Brookings Institution Press
- Volume 19, Number 2, Spring 2019
- pp. 69-99
- 10.1353/eco.2019.0002
- Article
- Additional Information
ABSTRACT:
This paper reviews the empirical literature on international spillovers and contagion. Theoretical models of spillover and contagion imply that the reduced-form observable variables suffer from two possible sources of bias: endogeneity and omitted variables. These econometric problems, in combination with the heteroskedasticity that plagues the data, produce time-varying biases. Several empirical methodologies are evaluated from this perspective: nonparametric techniques, such as correlations and principal components; and parametric methods, such as OLS, VAR, event studies, ARCH, and nonlinear regressions. The paper concludes that there is no single technique that can solve the full-fledged problem and discusses three methodologies that can partially address some of the questions in the literature.