proposed the idea of an ‘international financial multiplier’
whereby changes in asset prices are transmitted
across borders through the balance sheets of
highly leveraged institutions. As all economies now
share leveraged common creditors, balance sheet
contagion has become more pervasive. Krugman
concludes that increases in financial globalization—
in the sense that there are large international crossholdings
of assets—suggest (although does not
prove) that the international financial multiplier is
more important and there is therefore a greater risk
of system-wide contagion (Krugman, 2008).