Chapter 5: No Free Lunch – No Decoupling, the Crisis and Hungary: A Case Study
Júlia Király and Katalin Mérő INTRODUCTION 1 The financial crisis hit the developed countries first. In the summer of 2008, one of the main topics in blogs and journals was whether there would be a decoupling effect, and whether the emerging markets would be affected by the crisis. Then came the Lehman shock and the decoupling story was soon replaced by the recoupling story. Hungary was one country that was severely hit by the Lehman shock after more than a year of relative calm. In traditional contagion theories, contagion is basically geographical in nature, and non-epicentre countries can primarily be affected by a crisis through foreign trade relations. In the recent approaches, money and capital markets are the determining channels of contagion. The literature investigates several possible channels of contagion, and highlights the spillover effects, the importance of portfolio decisions and the close ‘interlinking’ of markets (Kaminsky et al., 2003; Schinasi and Smith, 2000). However, there is still no consensus regarding the underlying reasons for, and the strength and exact effect of the contagion spreading through global financial markets. Some suggest that the crises were triggered and their fast spread was fostered by the rapid capital market liberalisation forced onto the developing countries, while others think that the crises were less devastating in the liberalised markets, and recovery there was also quicker.1 The analysis of contagion that is not built directly on economic relations has strengthened, particularly since the Russian crisis, as the starting event in that...
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