The Brazilian Currency Turmoil of 2002: A Nonlinear Analysis

Abstract

This paper investigates the main sources of instability in Brazil during the currency and financial distress episode of 2002. We test for financial contagion from the Argentine crisis and the impact of factors including IMF intervention and political uncertainty in raising the probability of crisis. The empirical investigation employs a Markov switching model with endogenous transition probabilities.Brazil; contagion; financial crises; IMF intervention; Markov switching model; political uncertainty.