The Effect Of Uncertainty On The Occurrence And Spread Of Financial Crises

Many financial crises have occurred in emerging market economies around a few initial crises, particularly around the Mexican crisis in 1994, the Thai crisis in 1997, and the Russian crisis in 1998, as well as in developed economies around the breakdown of the European Exchange Rate Mechanism in 1992. These periods of crises concentration suggest contagion effects, i.e., the transmission of crises across countries beyond what would be implied by common shocks. The high economic cost of these periods explains the effort in trying to understand the factors behind the occurrence and the spread of crises.