What Drives Contagion? Identifying and Attributing Cross-Border Transmission Mechanisms
How financial shocks spread across countries—and which route they take
When stock markets in one country crash, others often follow, but researchers didn't know exactly how the damage spreads. This study traced contagion across 18 major economies from 2006 to 2026 and found that trade links, financial connections, and behavioral panic each play different roles depending on which crisis is happening. During the 2008 financial crisis, trade accounted for 28% of spillovers, while financial channels dominated earlier calm periods.
Policymakers trying to firewall their economies from global financial shocks need to know which transmission routes matter most in each type of crisis. Trade restrictions might help in some scenarios but miss the real danger in others. This framework reveals which channel to target, potentially saving governments from deploying expensive or ineffective crisis responses. The method also surfaces when the evidence is genuinely uncertain—transparency the researchers say is missing from most contagion research.