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The Transmission of World Shocks to Emerging-Market Countries: An Empirical Analysis

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  • Brigitte Desroches

Abstract

The first step in designing effective policies to stabilize an economy is to understand business cycles. No country is isolated from the world economy and external shocks are becoming increasingly important. The author documents the sources of macroeconomic fluctuations in 22 emerging-market countries, and measures two specific shocks that could be transmitted from one country to another: a world real output shock and a world real interest rate shock. Her analysis shows that there are major differences in the transmission mechanism across emerging-market countries. To assess whether they are due to different economic structures or to the exchange rate regime, she divides the sample into groups of countries. The results indicate that the exchange rate regime is a critical factor, although restrictions on capital flows also play a crucial role. The author also shows that regional groups and trade openness do not play as important a role as the exchange rate regime and capital flows in determining the transmission of business cycles.

Suggested Citation

  • Brigitte Desroches, 2004. "The Transmission of World Shocks to Emerging-Market Countries: An Empirical Analysis," Staff Working Papers 04-44, Bank of Canada.
    • Handle: RePEc:bca:bocawp:04-44
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    References listed on IDEAS

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    Cited by:

    1. Danica Unevska Andonova & Marija Petkovska, 2011. "The transmission of external shocks to the Macedonian economic activity," Working Papers 2011-03, National Bank of the Republic of North Macedonia.
    2. Titus Ayobami Ojeyinka & Dauda Olalekan Yinusa, 2023. "External Shocks and Their Transmission Channels in Nigeria: A Dynamic Stochastic General Equilibrium Approach," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 15(1), pages 132-153, January.
    3. Siok Kun, Sek, 2009. "The impacts of economic structures on the performance of simple policy rules in a small open economy," MPRA Paper 25065, University Library of Munich, Germany.
    4. Rodion V. Balakin & Yuliya A. Steshenko, 2024. "Review of Approaches to Assessing the Impact of New Challenges on the Economy and Certain Aspects of Taxation," Finansovyj žhurnal — Financial Journal, Financial Research Institute, Moscow 125375, Russia, issue 3, pages 68-85, June.

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    More about this item

    Keywords

    International topics; Exchange rate regimes; Transmission of monetary policy;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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