亞開行-考察美國貨幣在動蕩時期對印尼本幣政府債券的溢出英

ADBIWorkingPaperSeries

EXAMININGUSMONETARYSPILLOVER

TOINDONESIANLOCALCURRENCY

GOVERNMENTBONDSINVOLATILEPERIODS

MuhammadFajarNugraha

No.1375

May2023

AsianDevelopmentBankInstitute

MuhammadFajarNugrahaisananalystattheMinistryofFinanceIndonesia.

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TheAsianDevelopmentBankrefersto“China”asthePeople’sRepublicofChina.Suggestedcitation:

Nugraha,N.F.2023.ExaminingUSMonetarySpillovertoIndonesianLocalCurrencyGovernmentBondsinVolatilePeriods.ADBIWorkingPaper1375.Tokyo:AsianDevelopmentBankInstitute.Available:

/10.56506/MVMB2557

Pleasecontacttheauthorsforinformationaboutthispaper.

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?2023AsianDevelopmentBankInstitute

N.F.Nugraha

ADBIWorkingPaper1375

Abstract

ThisstudyanalyzesthemagnitudeoftheUSmonetarypolicyspilloverontheIndonesianlocalcurrencygovernmentbondyield,particularlywhentheFederalReserve(Fed)implementedthequantitativeeasing(QE),taperingoff,Fedfundrate(FFR)normalization,andquantitativetighteningoverthepastdecades.Understandingtheglobaleconomicdynamics,suchaschangesinUSmonetarypolicy,canbeacriticalpolicyinputtomitigaterisksintheIndonesianeconomy,particularlyinanticipatingthemonetarynormalizationpolicyamidstCOVID-19uncertainty.ChangesinUSmonetarypolicyintheformoftaperingoff,increasingtheFFR,andquantitativetighteningasanexternalphenomenonthatcanaffecttheyieldofIndonesianlocalcurrencygovernmentbonds.

Usingthegeneralizedautoregressiveconditionalheteroscedasticitymethod,thisstudyfoundthatchangesinUSmonetarypolicythroughtheportfoliobalanceandconfidencechannelshaveasignificanteffectinincreasingIndonesia’slocalcurrencygovernmentbondyield,particularlyduringthe2013monetarypolicynormalizationand2020pandemicQEperiod.Inaddition,Indonesia’slocalcurrencygovernmentbondsalsoexperiencedpersistentvolatilityintheobservedperiod,particularlyduringthe2008globalfinancialcrisis,the2013taperingoff,andthe2017–2019quantitativetightening.Volatilityoccurredatdifferentlevelsineachperiod,withthevolatilityduringthepandemicQEbeingthelowestcomparedtotheotherperiods.Thislowervolatilitywasmainlyduetothecombinationoflowerforeignownershipinthegovernmentbondmarketandafiscal-monetarypolicymixtorecovertheeconomy(includingthedebtmonetizationpolicy).Fromafiscalperspective,anincreaseingovernmentbondyieldvolatilityleadstoahighercostoffunds,whichputspressureonIndonesia’sstateexpenditure.Thisreflectstheriskthatthedebt,particularlygovernmentbonds,mayeventuallybecometooexpensivetoserviceandmayshrinkthefiscalspaceforfundingnationaldevelopmentinitiatives.

Keywords:bondyield,federalfundrate,USmonetarypolicy,tapering,quantitativetightening

JELClassification:E50,E52,F40

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ADBIWorkingPaper1375

Contents

1.INTRODUCTION 1

1.1ResearchBackground 1

1.2ResearchScope 5

2.THEORETICALBACKGROUND 5

2.1FinancialMarketIntegrationTheory 5

2.2FinancialContagionTheory 6

2.3PreviousResearch 8

3.METHODOLOGY 9

3.1ResearchVariables 10

3.2Data 11

3.3Hypothesis 12

4.RESEARCHANALYSIS 12

4.1RegressionResults 12

4.2Analysis 16

5.CONCLUSION 21

REFERENCES 23

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1.INTRODUCTION

1.1ResearchBackground

Theincreasinglyintegratedglobalfinancialmarketnotonlybringsbenefits,butitalsocarriesrisks.Theintegrationofglobalfinancialmarketsopensthedoorwideforinvestorstodiversifytheirportfoliosinvariouscountries.Suchportfoliodiversificationgloballyexpandsinvestmentopportunitiesandallowsinvestorstoinvestmoreefficiently.Financialintegrationhasincreasedtheinterdependenceofassetsbetweencountries,includingthegovernmentbondmarket(HeryánandZiegelbauer2016).Thissituationcanfacilitategovernmentsinseekingfinancingfromothercountriesbyissuinggovernmentbonds.

Thisintegrationoffinancialmarketscanalsobeaproblemwheneconomicspilloverfromonecountry,especiallydevelopedcountries,weakenstheeconomiesofothercountries.Thiscanalsospreadandweakenothercountriesonothercontinentsthatarenottheinitialcountrywheretheeconomicspilloveroccurred.Basedonthisphenomenon,thisstudyexaminedthemagnitudeofUSmonetarypolicyasanexternalfactoronIndonesianlocalcurrencygovernmentbondyield.

Globaleconomicshockshaveoccurredseveraltimesinthepasttwodecades,andtheyhavehadanadverseimpactonthefinancialsystemsofemergingcountries.OneofthetriggersforthisglobalfinancialturmoilwasthechangeinUSmonetarypolicy.?zcan(2021)emphasizedthatUSmonetarypolicyhasbeenthemostcriticalfactorforthecapitalinflowsandoutflowsofemergingcountriesduetoitssignificantinfluenceinshapingtheriskperceptionofglobalinvestors.Thenotorious2008GlobalFinancialCrisisarosefromthecollapseoftheUS(subprime)mortgagemarket,whichparalyzednotonlytheUSfinancialsystembutalsospreadtothefinancialsystemsofotheradvancedandemergingcountries.Toanticipatetheimpactofthecrisis,theFederalReserve(Fed)reduceditsbenchmarkinterestrate(i.e.,theFedFundRate[FFR])tozeropercentattheFederalOpenMarketCommittee(FOMC),aconditioncalledthezerolowerboundthatwascarriedouttoencouragetheeconomyandpreventadeeperrecession.

AftertheFFRreachedthezerolowerbound,theFedstartedusinganunconventionalmonetarypolicyinstrument,whichincludedforwardguidanceandquantitativeeasing(QE)tostabilizethefinancialsystemandsupportpost-crisisrecoveryandeconomicgrowth.QEwascarriedoutbypursuinglargescaleassetpurchasesinmortgage-backedsecuritiesandlong-termsecurities,whichhaveadirectimpactonincreasingtheFed’sbalancesheet.SomestudieshavefoundthatQEisacounter-cyclicalpolicythatpreventstheUSandotherdevelopedcountriesfromprolongedrecessionanddeflationandhassucceededinhelpingrestoremarketfunctionaftertheglobalfinancialcrisis(Fratzscher,LoDuca,andStraub2013;Chenetal.2016)

However,the2008QEalsohadconsequencesincontributingtothecapitalinflowsofemergingcountries.YangandZhou(2017)foundthatQEwasthemaindriverinincreasingcapitalflowsfromtheUStotherestoftheworld.Lim,Mohapatra,andStocker(2014)andPark,Ramayand,andShin(2016)foundthatcapitalinflowstodevelopingcountriesduringtheQEperiodweremoresignificantthanbeforetheglobalfinancialcrisis.Turner(2013,2014),inGuarin,Moreno,andVargas(2014),suggestedthatlowerlong-termyieldsintheUSandotherdevelopedcountrieshavepushedinvestorsintodevelopingcountries,supportedbyincreasedgloballiquidity(becauseofQE).Theinfluxofcapitalflowsaffectedexchangerateappreciation,economicgrowth,

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andasurgeinassetpricesindevelopingcountries(Mooreetal.2013;Fratzscher,LoDuca,andStraub2013).

ConcernsaboutthenegativeimpactofUSmonetarypolicyondevelopingcountriesemergedwhentheFedplannedtoreduceandstopitsQEpolicy.Afterseeingprogressintheeconomicrecoveryafterthe2008globalfinancialcrisis,theFedbeganits“tapertalk”in2013andannounceditsplantostopitsmonetarystimulus(i.e.,taperingoff).Thisannouncementcreatedadverseconsequences,calledthe“tapertantrum,”foremergingcountries,inwhichtheirfinancialmarketsdeteriorate,andthishitthe“FragileFive”countries(Indonesia,Brazil,SouthAfrica,India,andTürkiye)hardest.AccordingtoShin(2017),thistapertantrumcausedexchangeratedepreciationandmassivecapitaloutflowsfromemergingcountries.Afterseveraldelays,theFedfinallybegantoexecuteitstaperingoffpolicyinDecember2013,reducingthepaceofassetpurchasesby$10billion/monthfrom$85billion/monthto$75billion/month.

TheFedofficiallyterminatedtheQEprogramattheFOMCmeetinginOctober2014.TheFed’sbalancesheetattheendoftheQEprogramin2014rosesharplytoUSD4.48trillionfromUSD2.10trillionwhenthefirstQEwasannouncedinNovember2008.AftertheterminationofQEpolicy,on28January2015theFedplannedtoincreasetheFFRinthenextsixmonths.However,theFeddelayedraisingitsinterestratesseveraltimesbecausetheUSeconomicrecoverywasrunningbelowexpectations.AfterseveraldelaysinincreasingtheFFR,theFedfinallyincreasedtheFFRby25bpsto0.5%on16December2015.Sincethen,theFedgraduallyincreaseditsinterestrateto2.5%byDecember2018.

AftertheFFRhadbeenraisedseveraltimessinceDecember2015,theFedalsostarteditsbalancesheetnormalizationprograminOctober2017(knownasthequantitativetighteningpolicy)tograduallyreducethesizeoftheFed’sbalancesheet(Engemann2019).Quantitativetighteningisacontractionarymonetarypolicythatiscarriedoutthroughthemechanismofnotreinvestinginsecuritiesassetswhentheassetsaremature(passivetightening).TheFedappliesamaximumcaponthenumberofmaturingsecuritiesinwhichitwillnotreinvest.Ifthevalueofthesecuritiesisabovethemaximumcap,theFedwillreinvestthesecurities.ThisquantitativetighteningpolicyonlylasteduntilQ3-2019.IntheFOMCmeetinginJuly2019,theFedannouncedtheterminationofthequantitativetighteningpolicyinAugust2019duetoglobaleconomicdevelopmentsthatoccurredduringthatperiod.ThequantitativetighteningpolicyreducedtheFed’sassetsofaroundUSD698.63billionfromOctober2017(USD4.46trillion)toAugust2019(USD3.76trillion).

ThedynamicsofUSmonetarypolicychangedagainintheearly2020swhentheCOVID-19pandemictriggeredaglobalhealthandfinancialcrisis.TocontaintheeconomicturmoilsparkedbyCOVID-19,theUnitedStatesissuedmassivefiscalandmonetarystimulus,oneofthelargestintheworld.Thefiscalstimulusthatprovidedsocialassistance,aswellasbusinesssupport,reachedmorethanUSD5trillion,orabout25%ofUSGDP(ElginandYalaman2021).Onthemonetaryside,theFedreimplementeditszerolowerboundandQEpolicyonamuchlargerscalethanforthe2008globalfinancialcrisis.ItonlytooktwomonthsfortheFedtoincreasethesizeofitsbalancesheetby$2trillionduringthepandemic,whileittooksixyearstoreachthesamenumberin2008(Figure1).

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Figure1:TheFederalReserveBenchmarkRateandAssets

Source:Bloomberg.

Thisenormousfiscalandmonetarystimulus,alongwithvaccinationefforts,yieldedpositiveresultswhentheUSeconomybegantorecoverwhileCOVID-19pandemiclingered.SeveralUSeconomicindicatorsshowedaprogressiverecovery,suchas:

1.theUSGDPhasgrownpositivelysinceQ12021;

2.manufacturingactivityescapeditscontractionzonesinceJuly2020andcontinuedtoexpand(ManufacturingPurchasingManagerIndexabovethethresholdof50);

3.inflationrosebeyondexpectationsandabovetheexpectedtargetof2%sinceMarch2021toDecember2021;moreover,inflationreached7%(YoY)inDecember2021,itshighestsince1982;and

4.theunemploymentrateduringthepandemicperiodcontinuedtodecline,fromitshighestrateof10.2%inApril2020to3.9%inDecember2021.Thequarterlyaveragesfortheunemploymentrateinthe2021tapertalkwerebelowtheunemploymentrateduringthe2013tapertalk(Q2-2021:5.9%,Q3-2021:5.1%;Q1-2013:7.7%,Q2-2013:7.5%).

TherapidrecoveryoftheUSeconomyinthelongaftermathofCOVID-19hasledtospeculationregardingfutureUSmonetarypolicyand,particularly,abouttheFed’splantorollbackitsmonetarystimulusandincreaseitsFFR.TherecentmonthlyFOMCmeetingmadeseveralannouncementsregardingtheFed’splantonormalizeitsmonetarypolicyinthenearfuture.

1.FOMCMeetingJune2021:TheFedsignaledanaccelerationofratehikesin2024.

2.FOMCMeetingJuly2021:TheFedbegandiscussionsonannouncingtaperingoffofQEattheendof2021.

3.JacksonHoleSymposiumAugust2021:FedChairman,JeromePowell,signaledthataverylargetaperingoffwouldbeannouncedin2021,andtheinterestratewouldberaisedin2023,notingthattheplannedratehikewoulddependheavilyonlaborindicators.

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4.FOMCMeetingSeptember2021:Iftheprogressofeconomicrecoverycontinuesasexpected,theFedsignaledthatgradualtaperingcouldcommenceinmid-Novemberormid-December.

5.FOMCMeetingNovember2021:theFOMCdecidedtobeginreducingthemonthlypaceofitsnetassetpurchasesbyUSD10billionforTreasurysecuritiesandUSD5billionforagencymortgage-backedsecurities.

6.FOMCMeetingDecember2021:Meetingparticipantsassessedthattheappropriatepaceofbalancesheetrunoffwouldbefasterthanitwasduringthepreviousnormalizationepisode.TheFOMCdecidedtoreducethemonthlypaceofitsnetassetpurchasesbyalargeramountcomparedtotheNovember

2021meeting,reducingTreasurysecuritiesbyUSD20billionandagencymortgage-backedsecuritiesbyUSD10billion.

Someanalystshavedifferentviewsregardingthepotentialimpactofthepost-pandemicUSnormalizationpolicyondevelopingcountries.Somehavearguedthattheimpactwouldbegreater,whileothershavestatedthattheimpactislikelytobelessthanthatfromthe2013tapertantrum.NomuraResearchclassifiedtenemergingcountries(“theFragile10”)—Brazil,Colombia,Chile,Peru,Hungary,Romania,Türkiye,SouthAfrica,Indonesia,andthePhilippines—thatwillbesusceptiblewhentheFedimplementsitstaperingpolicy.InAugust2021,theIMFchiefeconomistGitaGopinathalsowarnedthatdevelopingcountrieswouldfacedifficultieswhentheUSresumesitstaperingpolicy.

ApotentialrollbackinmonetarypolicybytheFedcoulddrivecapitaltoasuddenstopandreversalaswellasleadingtoanincreaseintheinterestratesofdevelopingcountries.AccordingtoEngler,Piazza,andSher(2021),eachpercentagepointincreaseintheUSinterestratetendstoraisetheaverageemergingcountry’slong-terminterestratebyathirdofapercentagepoint,orevenmore(two-thirdsofapercentagepoint)foremergingcountrieswithalowercreditrating.Theseincreasesininterestratespotentiallydecreaseconsumptionandinvestment,whichwilldiminishthemomentumofeconomicrecoveryinthepost-pandemicera.

Learningfromexperience,IndonesiashouldmitigatetheriskofturmoilinthefinancialmarketsduetothetaperingoffandnormalizationofUSmonetarypolicy.In2013,financialmarketturmoilemergedwhentheFedenteredthetapertalkphaseandbeganspeakingaboutprospectsforgraduallyunwindingitsunconventionalQEmonetarypolicy.Thisshockedglobalfinancialmarkets,creatingnegativeexpectationsforinvestorstoinvestinthefinancialmarketsofemergingcountries(Sahayetal.2014).Duringthistapertalkperiod,Indonesiawasoneofthecountrieswhosefinancialmarketwasthemostaffected,asindicatedbystockmarket,declinesexchangeratepressures,reducedreserves,andalargeincreaseinthebondspread(EichengreenandGupta2014).Duringtheongoingpost-pandemiceconomicrecovery,Indonesia’spositionhasreliedonexternalfinancing,particularlyfromgovernmentbondissuance.AneconomicspilloverthatdriveshikesintheIndonesiangovernmentbondyieldcouldpressureIndonesia’sannualbudget.Thehigherthegovernmentbondyield,thehighertheinterestcoststhegovernmentmustpay.

Economicrisksoriginatingfromexternalfactorscanbeansweredbyexaminingtherelationshipbetweeneconomicspilloversoriginatingfrominfluentialdevelopedcountries,suchastheUnitedStates.TheabilitytoanalyzethebehaviorofIndonesiangovernmentbondyieldsinagloballyintegratedfinancialsystemwillthusbeacriticalinputforpolicymakers.Robustanalysisoftheimpactofglobaleconomicspilloverswillhelpdomesticpolicymakerstoprepareforpotentialspilloversfromexternaleconomicphenomenonand,inparticular,inanticipatingthechangesinUSmonetarypolicyin

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theformoftapering,FFRnormalization,andquantitativetighteningamidsttheuneveneconomicrecoveryaftertheCOVID-19pandemic.

1.2ResearchScope

Thisstudysoughttoanswerthefollowingresearchquestions:first,doesUSmonetarypolicyhaveasignificantspillovereffectontheIndonesianlocalcurrencygovernmentbondyield?Second,ofthe2008QEperiod,monetarypolicynormalizationin2013,andtheCOVID-19pandemicQE,whichperiodhashadthemostsignificantimpactonthevolatilityofIndonesianlocalcurrencygovernmentbondyields?Addressingthesequestionsisessential,asseveralglobaleconomiceventsinthepastfewdecadeshavecreatedaspillovereffectonthefinancialmarketsofemergingcountries.Discoveringthefactorsthatdrivetheincreasesinacountry’slong-termyieldisimportantformacroeconomicmanagement,becauseahighlong-termyieldcanburdenacountry’sfiscalcondition.

Toanswertheresearchquestions,thisstudyfocusedonthechangesinUSmonetarypolicyfromJanuary2005toDecember2021,aperiodthatincludedvariousvolatileeconomiceventssuchasthe2008globalfinancialcrisis,themonetarynormalizationpolicy(tapering,FFRincrease,andquantitativetightening),andtheCOVID-19pandemic.Thisstudyenrichestheliteratureanalyzingtheimpactofglobaleconomicspilloversandprovidesanempiricalestimateofglobaleconomicspillovereffectsonthefinancialvariablesofemergingcountries,particularlyduringtheongoingeconomicrecoveryfromtheCOVID-19pandemic.ToestimatetheeffectofUSmonetarypolicyontheIndonesiangovernmentbondyield,thisstudyusedthegeneralizedautoregressiveconditionalheteroscedasticity(GARCH)methodologytotreatheteroscedasticityinhigh-frequencydataandtomeasurethevolatilityinIndonesia’sgovernmentbondyieldfrom2005to2021.

2.THEORETICALBACKGROUND

2.1FinancialMarketIntegrationTheory

Financialmarketintegrationistheprocessbywhichacountry’sfinancialmarketsbecomeincreasinglyintegratedwithothercountriesorglobally(Inter-AmericanDevelopmentBank,2002).Financialintegrationcanbeachievedintwoways.Thefirstwayencompassestheformaleffortsinintegratingfinancialmarketsthatarisefromtheagreementoftwoormorecountries.Usually,theseeffortsoccurfromcountriesthathavemembershipinaregionalintegrationagreement.Theintegrationoffinancialmarketsappearfromtheseformaleffortsintheformofeliminatingrestrictions,clarificationofregulations,andtaxesbetweenmembercountries.Thesecondwayfinancialmarketintegrationcanariseiswithoutexplicitagreementbetweencountries(informalefforts).Thishappens,forexample,whenforeignbanksenteradomesticmarket,throughforeignparticipationinthedomesticfinancialmarket,foreignsecuritiestrading,anddirectloanstodomesticcompaniesontheinternationalmarket.Eyraud,Singh,andSutton(2017)mentionedthatfinancialmarketintegrationisaprocessoftwoormorecountriesorregionalfinancialmarketsbecomingmoreinterconnected.Thiscantaketheformofsharinginformationandpracticesbetweenfinancialinstitutions,accesstosourcesofcorporatefinancingininternationalcapitalmarkets,foreignparticipationindomesticfinancialmarkets,ortheunificationofdifferentcountries’financialinfrastructures.

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Anintegratedglobalfinancialmarketallowsinvestorstomovefundsfromonecountrytoanother.Undertheinvestmentdiversificationruleofthumbofnotputtingalltheeggsinonebasket,investorsmovepartoftheirportfoliotootherinvestmentinstrumentsoutsidetheirowncountry.Levine(2001)hasshownthatfinancialintegrationhelpsstrengthenthedomesticfinancialsector,enablingmoreefficientcapitalallocationandgreaterinvestmentandgrowthopportunities.Financialintegrationalsohasrisksofaggravatingfinancialcontagionifacountryexperiencesacrisisorchangesitsfiscalormonetarypolicies.Financialintegrationcanencouragecapitaloutflowsfromcountrieswithweakfinancialinstitutionstodevelopedcountrieswithhigherqualityfinancialinstitutions.

Sincethemid-1990s,therehasbeenasignificantincreaseinfinancialintegrationthroughincreasinginvestmentpreferencesfordevelopingcountries(DuaandTuteja2016).Thisincreaseinfinancialintegrationhasresultedinagreatdealofcapitalflowacrossthebordersbetweencountries,bothdevelopedanddeveloping.Thisincreaseinfinancialintegrationisalsodrivingglobalfinancialmarketscloserandincreasingthepresenceofforeignfinancialinstitutionsthroughouttheworld.Withrapidcapitalflowsacrosstheglobe,financialcrisessuchasthe1998Asianfinancialcrisisandthe2008globalfinancialcrisisbecomeinevitable.Developingcountrieswithexcessivecapitalflowsaremorevulnerabletofinancialdisruptionthandevelopedcountries.

2.2FinancialContagionTheory

Dornbusch,Park,andClaessens(2000)definedfinancialcontagionasthespreadofmarketdisruptionfromonecountrytoanother,whichcanbeobservedthroughjointmovementsinexchangerates,stockprices,bondspreads,andcapitalflows.ClaessensandForbes(2004),however,suggestedthatfinancialcontagionreferstotheeconomicvulnerabilityofonecountrytoeventsthatoccurinothercountries.Wheninvestorsfaceliquidityneedsinaparticularassetorcountry,theytendtowithdrawliquidityfromotherassetsorothercountries.Theneedforliquidity,reflectedbychangesinUSbenchmarkrates,isoneofthemainavenuesfortransmissionoffinancialturmoilinthefinancialassetsofmanycountries.AccordingtoClaessensandForbes(2004),contagioncanoccurintwocategories:fundamentalcauses(common/globalshock,tradelink,andcertainfinanciallinkages)andinvestorbehavior(liquidityproblem,incentiveproblem,informationalasymmetries,marketcoordinationproblem,andinvestorreassessment).

Oneexampleofafundamentalcauseisthepresenceofacommonorglobalshock.ChangesintheUSmonetarypolicycanbecategorizedasacommonshock.Thishappensbecauseashiftinkeyeconomicindicatorsindevelopedcountries(e.g.,changesininterestrates),changesincommodityprices,oradeclineinglobaleconomicgrowth,couldtriggerlargecapitaloutflows,recession,andcrisisinemergingcountries.Aloosemonetarypolicyinadevelopedcountrywill,forexample,beapushfactorthatincreasesforeigndemandforanemergingcountry’sfinancialassets(includinggovernmentbonds)—andviceversa:whenadevelopedcountrytightensitsmonetarypolicy,thisreducestheforeigndemandforanemergingcountry’sfinancialassets(includinggovernmentbonds).

Emergingcountryfinancialmarketsthatdependonforeignfinancingaremorevulnerabletochangesintheinterestratesofdevelopedcountries,astheinterestrateshockdrivescapitaloutflow.Capitaloutflowinanemergingcountrycanleadtoanincreaseinborrowingcosts,aswellasincreasingpressureontheemergingcountry’slocalcurrencydepreciation,asforeigninvestorswithdrawtheirinvestmentforfearofincreasingrisk.Intermsoftrade,localcurrencydepreciationcouldincreaseexports

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duetoafavorablepricecompetitiveness,buttherearealsodownsiderisks,suchasincreasedinflationarypressureduetotheincreaseinthepriceofimports.

Investorbehaviorcanalsocontributetofinancialcontagionfromonecountry.ClaessensandForbes(2004)havenotedtheoccurrenceofcontagionbasedoninvestorbehaviorthatfocusesonliquidityproblems,incentiveproblemsandriskavoidance,andinformationasymmetry.Inthecaseofliquidityproblems,afinancialcrisisinonecountrycancauseinvestorstosellsecuritiesinothermarketstogetcashtoanticipateilliquidrisks.