Interest Rate Volatility and Contagion in Emerging Markets: Evidence from the 1990s

In this paper we use high frequency interest rate data for a group of Latin American countries to analyze the behavior of volatility through time. We are particularly interested in understanding whether periods of high volatility spillover across countries. Our analysis relies both on univariate and bivariate switching volatility models. Our results indicate that high-volatility episodes are, in general, short-lived, lasting from two to seven weeks. We find some weak evidence of volatility co-movements across countries. Overall, our results are not overly supportive of contagion' stories.