ANALYSIS OF FINANCIAL CRISIS CONTAGION INDICATORS

Abstract

The financial crisis in the last decades has become a common phenomenon. However, due to the process of globalization, financial markets’ integration and their interdependency, financial crisis tend to evolve and gain not only regional but also global scale. In the context of financial market liberalization, globalization and internalization, the subsequences caused by financial risk and financial crises contagion become more visible and more severe. The financial crisis that originated in one region of the world through the rapid process of financial markets’ globalization may spread worldwide and adversely affect other geographical regions, thus causing serious problems and disruption throughout the whole global financial system in the way of destabilizing it. Although it is not easy to forecast crises with high reliability, recently a lot of scientific researches were done on the analysis of financial crisis indicators. Early warning system of forthcoming crisis that uses a lot of different economical and financial indicators can indeed be a useful tool for preparation for the coming financial crisis, for evaluating subsequences of crisis to a country’s economy and for assessing the impact of financial crisis future vulnerabilities. In the article all the financial crisis indicators which are presented in scientific literature are examined systemically and classified into four main groups. The main finding is that all the financial crisis indicators differ in their significance on financial crisis contagion. Moreover, all indicators and their observance simultaneously let both academics and politicians to evaluate the current economic situation and to determine if a country is struck by financial crisis or not. By using system of financial crisis indicators it could help to detect contagion at an earlier stage and help to prepare for the forthcoming crisis and to prevent from huge losses when the financial crisis hits. After all, the knowing of financial crisis contagion indicators system could be extremely valuable in developing appropriate financial risk management strategies.