Research On The Spatial Contagion Of Currency Crisis Among AIIB Members And Its Economic Growth Effect

There have been many currency crises in history,including the ERM crisis in1992-1993,and the Southeast Asian currency crisis in 1997.Among them,there are not only common shock factors,but also currency crisis spatial contagion.From 2017 to 2018,along with the Federal Reserve’s interest rate hikes,balance sheet shrinking,and US economic recovery,the U.S.dollar continued to strengthen,and the Turkish lira,the Russian ruble,the South African nantes and the Indian rupee all experienced substantial depreciation.With the emergence of uncertain factors such as the rapid trade sanctions initiated by the United States against other countries(or regions)and the US dollar interest rate hike,the risk of currency depreciation will exist for a long time in the future.As a multilateral financial institution independent of the United States,the AIIB can play an active role.In addition,the economic and trade relations between AIIB members are continuously strengthened,and there is a broad space for development in the future: first,the AIIB members are mainly concentrated in Asia and Europe,with close geographical distances,and convenient transportation such as railways and sea routes;second,it is the Asian Infrastructure Investment Bank that will provide members with local currency financing programs,focusing on supporting infrastructure construction in developing economies with weak economic foundations.This is of great significance for stabilizing exchange rates and stimulating economic recovery.Therefore,research based on the perspective of AIIB members has very important practical significance.In addition,although there are many literatures about currency crisis contagion,there are few literatures on the economic growth effect of currency crisis spatial contagion.Furthermore,the existing literature mainly focuses on benchmark model estimation,while other forms of financial crises,such as banking crises or sovereign debt crises,are often accompanied by currency crises.Therefore,it is necessary to investigate from the perspective of the superimposed effects of multiple crises.Moreover,although the existing literature puts forward some targeted policy recommendations,empirical analysis is rarely used to test the effects of these policy recommendations.In summary,in order to systematically investigate the currency crisis spatial contagion and its economic growth effects,this article will be based on three dimensions: benchmark model estimation,comparison of a simple currency crisis and multiple crises superimposed,and the impact of policy variables.The research results of the currency crisis spatial contagion are as follows: First,the currency crisis has significant spatial contagion.Geographical channels,trade channels,and macroeconomic similarities are all important ways of currency crisis spatial contagion;compared to geographic channels,trade channels play a greater role in currency crisis spatial contagion;the spatial panel model estimation results considering common factors shows that after removing the common impact of US dollar interest rates,the spatial contagion effect of the currency crisis still exists.Second,compared to a pure currency crisis,the spatial contagion of multiple crises is more stronger.Third,the threshold effect model estimation shows that policy variables will affect the contagiousness of currency crisis.(a)The more credits are issued,the greater the pressure of currency depreciation,and currency crises in other regions are more contagious to this region.(b)When foreign exchange reserves are low,they are prone to speculative attacks.Therefore,currency crises in other regions are more contagious to the region.(c)When the scale of quantitative easing is larger,the probability of currency crisis contagion in the region is greater.The currency crisis spatial contagion will trigger a currency crisis in the region,and then indirectly affect the economic growth of the region through the currency crisis.It is necessary to systematically examine the impact of the currency crisis on economic growth.The results of the research on the impact of the currency crisis on economic growth are as follows: First,the currency crisis will have a serious shock on economic growth.A sharp currency depreciation will lead to inflation,decrease in the actual wealth of residents,and deterioration of the economic situation,which will adversely affect economic growth.Due to the weak economic foundation,the currency crisis in developing economies has a greater negative economic growth effect than developed economies.Secondly,in most cases,the superposition of multiple crises has a greater negative impact on economic growth than a simple currency crisis.Finally,adopting appropriate policies can alleviate the adverse effects of the currency crisis on economic growth.(a)When the currency crisis is encountered,the financing capacity of enterprises is limited.At this time,the increase in the level of banking of the financial structure will help alleviate the financing difficulties of enterprises and reduce the negative economic growth effect of the currency crisis.(b)Drop in interest rates can reduce the credit cost of corporate,thereby curbing the adverse effects of the currency crisis on economic growth.(c)The increase in government budget surplus will help attract foreign investment,thereby reducing the negative impact of the currency crisis on economic growth.The currency crisis will directly affect the real economic elements of the region through channels such as geographical proximity and bilateral trade,which in turn will have an impact on the region’s economic growth.The results of research on the impact of currency crisis space contagion on economic growth are as follows: First,currency crisis space contagion has a significant negative impact on economic growth.Geographic proximity,bilateral trade relations,and macroeconomic similarity are all important channels of influence;compared with geographic proximity,bilateral trade relations play a more important role in the process of currency crisis spatial contagion affecting economic growth.Second,compared to only considering currency crises,under the superposition of other forms of financial crisis and currency crisis,the spatial contagion of financial crises will have a greater negative impact on economic growth.Third,active policy response can reduce the negative impact of currency crisis space contagion on economic growth:(a)Increase in bank credit can alleviate corporate financing difficulties,thereby suppressing the negative impact of currency crisis space contagion on economic growth.(b)Lower interest rates can reduce corporate financing costs,thereby suppressing the negative impact of currency crisis spatial contagion on economic growth.(c)Increasing public debt expenditure can increase the entire social capital investment,which can restrain the negative impact of currency crisis space contagion on economic growth to a certain extent.