Study Of The International Transmission Mechanism Of The Financial Crisis

With the expediting of the globalization in the economic and financial fields, international financial crisis broke out more frequently since 1990, which have new characteristics as the power of destroying basic economy boosting up, the area of its influence extending more widely and the power of international contagion strengthening greatly. Being a developing country, also a transferring country, China has enormous financial risks. Especially after the entry to WTO, with the full and thorough opening in financial and other fields in China, the transferring of its systems will bring about tremendous uncertainty that should not be ignored. The reform of the interest rate and exchange rate and the further opening up of its fianancial markets all contain financial risks that should not be underestimated. All the factors mentioned above will probably lead to eruptuion of financial crisis and the contagion from international finanacial crisis. Therefore, the purpose of this paper is to give countermeasures on how to prevent the international financial crisis spreading into China.In this paper we abstract and generalize the notion of financial crisis on the base of stating and comparing many existed interpretations, describe its manifestations, characteristics and classifications, and then emphasizedly analyse the inner factors which lead to the eruption of financial crisis in one country, we mainly introduce the models called the first, the second and the third generation financial crisis models. Thus forming a theoretic basis for the paper, aslo act as the base of understanding the inner mechanism of the eruption of financial crisises in one country and the mechanism of the contagion of international financial crisis.Having these as its foundations, the paper focuses on the mechanisms of international contagion. Firstly, we identify the implications of international contagion after comparing many of its extant notions, and describe its main characteristics, thus forming another theoretic basis for the paper. Then we abstract and generalize the two main mechanisms of international contagion, i.e. contagious mechanism and the incontagious one and endow them with new implications and analyse these mechanisms in great detail.As the purpose of the paper, in the end, we bring forward the countermeasures on how a country keeps international contagion away and how to govern it effectively. We mainly discuss the extant factors in China that will probably lead to the eruption of financial crisis and international contagion and illustrate their mechanisms as well. Here we attempt to predict the possible factors which will mainly lead to the eruption of financial crisis in the coming serveral years and bring forward our suggestions on how China keep away the international contagion effectively.