An Empirical Study On Contagion Effect Of Financial Crisis And Causes

The global financial crisis which causes by the American sub prime mortgage crisis has received the widespread attention. It is not only the one of the gravest crisis in the American finance history, but also causes the massive loss to the world economics. The global stock market has been shocked and the entire economical fell into decline. The crisis contagion's multiplicity, complexity, shortcut, universality and the impacts to each country have attracted lots of researchers'attention.This paper summary the literature research, in the foundation of abstracting the contagion definition, and analyzes the contagion effects of this financial crises. And then the paper takes the 2008's financial crisis for example, and selects United States, China, Japan, South Korea, Australia etc. as the sample, and uses a VAR model to test whether these contagion effects exists or not, and then the result is positive. Based on this, the paper uses a panel data of the crisis to analyze its main causes. According to the empirical result, the main reasons of the contagion in this crisis are the macroeconomic fundamental condition, the state of capital account, the status of international trade, the rate of foreign debt to GDP and the surplus and the domestic consumer price index, which is the theory and empirical base of preventing contagion for various economies.According to the empirical results, this paper proposed the following countermeasure: all countries must strengthen international cooperation, adjust the balance of international payment, open their capital account and financial market properly, as far as possible maintain the debt rate in security. China should to adjust the balance of international payment, use the foreign exchange reserve effectively, establish multilateral overseas markets and take the domestic demand as the main point of the economic growth. All of these can help China to prevent the financial crisis contagion.