Model of Financial Crisis Contagion SSRN (original) (raw)

2013

Abstract

The nascent financial crisis started mainly in USA as a result of several factors: extraordinary boom in the housing market, historically low-interest rates, introduction of financial innovations exploiting the pervasive deregulation, virtual decline of the inflation fear among central banks, thereby relaxing their customary vigilance, strong payment imbalances between countries, resulting in global large scale investing, new financial products, e.g. derivatives (Sakbani 2010). International character of these and other factors propagated the crisis to spread gradually during the years 2007-2012, embracing numerous markets worldwide, affecting almost all European countries. However, not necessarily at the same time, due to the same initiators.

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