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Assessing Vulnerabilities in Emerging-Market Economies

Author

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  • Tatjana Dahlhaus
  • Alexander Lam

Abstract

This paper introduces a new tool to monitor economic and financial vulnerabilities in emergingmarket economies. We obtain vulnerability indexes for several early warning indicators covering 26 emerging markets from 1990 to 2017 and use them to monitor the evolution of vulnerabilities before, during and after an economic or financial crisis. We find that different historical episodes of crises reflect different vulnerabilities in terms of their composition, buildup and responses. Nevertheless, most currency crises are generally preceded by a buildup of imbalances in the external sector followed by an increase in sovereign debt imbalances. Finally, we assess current EME vulnerabilities in our country sample and visualize them using a heat map.

Suggested Citation

  • Tatjana Dahlhaus & Alexander Lam, 2018. "Assessing Vulnerabilities in Emerging-Market Economies," Discussion Papers 18-13, Bank of Canada.
    • Handle: RePEc:bca:bocadp:18-13
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    References listed on IDEAS

    as
    1. Aikman, David & Kiley, Michael & Lee, Seung Jung & Palumbo, Michael G. & Warusawitharana, Missaka, 2017. "Mapping heat in the U.S. financial system," Journal of Banking & Finance, Elsevier, vol. 81(C), pages 36-64.
    2. Gurnain Pasricha & Tom Roberts & Ian Christensen & Brad Howell, 2013. "Assessing Financial System Vulnerabilities: An Early Warning Approach," Bank of Canada Review, Bank of Canada, vol. 2013(Autumn), pages 10-19.
    3. Frankel, Jeffrey & Saravelos, George, 2012. "Can leading indicators assess country vulnerability? Evidence from the 2008–09 global financial crisis," Journal of International Economics, Elsevier, vol. 87(2), pages 216-231.
    4. Barbara Rossi & Tatevik Sekhposyan, 2015. "Macroeconomic Uncertainty Indices Based on Nowcast and Forecast Error Distributions," American Economic Review, American Economic Association, vol. 105(5), pages 650-655, May.
    5. Seung Jung Lee & Kelly E. Posenau & Viktors Stebunovs, 2017. "The Anatomy of Financial Vulnerabilities and Crises," International Finance Discussion Papers 1191, Board of Governors of the Federal Reserve System (U.S.).
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    Cited by:

    1. Kose,Ayhan & Ohnsorge,Franziska Lieselotte, 2020. "Emerging and Developing Economies : Ten Years After the Global Recession," Policy Research Working Paper Series 9148, The World Bank.
    2. Ruch,Franz Ulrich, 2020. "Prospects, Risks, and Vulnerabilities in Emerging and Developing Economies : Lessons from the Past Decade," Policy Research Working Paper Series 9181, The World Bank.

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    More about this item

    Keywords

    International topics; Monetary and financial indicators; Recent economic and financial developments;
    All these keywords.

    JEL classification:

    • E - Macroeconomics and Monetary Economics
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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