Assessment of Financial Contagion of Asian Countries through the Currency Channel during the Asian Financial Crisis

The article examines the problems of transmission of financial contagion through the currency channel among the countries of the Asian region during the Asian crisis of the 1990s. A brief overview of the dissemination of currency shocks across Asian economies is provided. The results of an empirical study aimed at obtaining estimates of the extent of financial contagion in a sample of Asian countries are presented. Advanced econometric models, specifically DCC-GARCH, were employed, utilizing a comprehensive empirical database on currency volatility. The results showed a different degree of susceptibility of Asian currency markets to financial contagion during the period under review. Indonesia was the most affected by the crisis due to problems in the banking sector and high dependence on external financing. Japan and Hong Kong, on the contrary, showed resilience to the currency shock. In general, the financial crisis has demonstrated a high level of interconnectedness and interdependence of Asian economies.