Financial crisis: Why the contagion?

Mon, Aug 20 2007, 07:52 GMT
by Pär Magnusson


  • We are amidst a financial crisis. We attempt in this note to give a stylised explanation as to why the negative effects on assets are amplified and why this entails contagion effects
  • Balance sheet contractions are an important factor behind the spreading of the financial crisis.
  • Since we do not know for how long this crisis will last, we believe caution is warranted.