| I fit a reduced-form model of defaultable debt to a sample of dollar-denominated bonds issued by twelve developing countries during the 1990s. I analyze the factors underlying these bond prices for evidence supporting two hypotheses for the cause of financial market crises: a world shock common to all countries in the sample, or a change in the mechanism of shock transmission among the countries in the sample. I find little evidence for a world shock, but we do find that a common flight to quality is pervasive, particularly following the Russian default in 1998. I find a stronger role for shocks transmitted among the sample countries, often along trade or regional links. Finally, there is some evidence indicating that the severity of these crises, and the risk attributed to the bonds in our sample, rose during the 1990s. |
