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The transmission of US systemic financial stress: Evidence for emerging market economies

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  • Fink, Fabian
  • Schüler, Yves S.

Abstract

We provide empirical evidence that US systemic financial stress shocks (US-SFSSs) are an important driver of economic dynamics and fluctuations in EMEs. Applying a structural vector autoregression, we analyze the international transmission of US-SFSSs to eight EMEs using monthly data from 1999 to 2012. US-SFSSs are identified as unexpected changes in the financial conditions index of the Federal Reserve Bank of Chicago. Findings indicate that a typical emerging market real economy experiences similar negative effects to those seen in the US real economy in response to US-SFSSs. For international transmission, our results emphasize that financial interconnectedness with the US is important relative to trade relations. The analyzed cases of Latin American economies suggest that indirect linkages are also important for transmitting the negative effects of US-SFSSs. In general, US-SFSSs act as a crucial driver of volatility in the emerging world; also at business cycle frequencies.

Suggested Citation

  • Fink, Fabian & Schüler, Yves S., 2015. "The transmission of US systemic financial stress: Evidence for emerging market economies," Journal of International Money and Finance, Elsevier, vol. 55(C), pages 6-26.
    • Handle: RePEc:eee:jimfin:v:55:y:2015:i:c:p:6-26
    DOI: 10.1016/j.jimonfin.2015.02.019
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    More about this item

    Keywords

    Systemic financial crisis; International transmission; Emerging markets; Structural VAR;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F30 - International Economics - - International Finance - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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