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Emerging market responses to external shocks: A cross-country analysis

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  • Sungurtekin Hallam, Bahar

Abstract

The size of emerging markets, as well as their economic and financial interconnectedness is increasing over time, making it important to understand their interdependencies with other economies. We develop and apply a new methodology to analyse international macroeconomic and financial shock transmission from 1978 to 2016 for 14 economies, focusing on the heterogeneity of emerging market responses across countries and over time. We find substantial time variation in the effects of these shocks with GDP, investment and consumption becoming more sensitive to global financial conditions over time. The higher perceived risk of emerging markets when global financial conditions deteriorate is reflected on their asset prices and their borrowing costs. However, a US policy rate shock does not have the expected contractionary effect, as this is partially taken over by the global financial risk shock we included. Our findings vary across countries and we attribute this to differences in country characteristics.

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  • Sungurtekin Hallam, Bahar, 2022. "Emerging market responses to external shocks: A cross-country analysis," Economic Modelling, Elsevier, vol. 115(C).
    • Handle: RePEc:eee:ecmode:v:115:y:2022:i:c:s0264999322001948
    DOI: 10.1016/j.econmod.2022.105948
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    More about this item

    Keywords

    Time-varying parameter GVAR model; Factor analysis; Dual Kalman filter; Transmission channels of external shocks; Monetary policy;
    All these keywords.

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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