IDEAS home Printed from https://ideas.repec.org/p/fip/feddgw/288.html
   My bibliography  Save this paper

Financial performance and macroeconomic fundamentals in emerging market economies over the global financial cycle

Author

Abstract

This paper explores the relationship between financial performance and macroeconomic fundamentals in emerging market economies not only in times of crises, but in general during crisis and non-crisis years over the global financial cycle. Using a panel framework with data for 119 emerging market economies at an annual frequency, we examine whether the relationship between performance and fundamentals varies in magnitude and/or switches sign between crisis and non-crisis years. We find that better macroeconomic fundamentals (such as a stronger net foreign asset positions and higher stocks of foreign exchange reserves) are associated with better financial performance not just during crisis episodes, but also during normal times. Quantitatively, the impact of fundamentals on performance is smaller during normal times than during crisis years, but works in the same direction and is statistically significant. The results are consistent with those of recent empirical studies on the link between financial performance and fundamentals during episodes of global financial stress, but generalizes the results to the global financial cycle.

Suggested Citation

  • J. Scott Davis & Andrei Zlate, 2016. "Financial performance and macroeconomic fundamentals in emerging market economies over the global financial cycle," Globalization Institute Working Papers 288, Federal Reserve Bank of Dallas.
    • Handle: RePEc:fip:feddgw:288
    DOI: 10.24149/gwp288
    as

    Download full text from publisher

    File URL: http://www.dallasfed.org/assets/documents/institute/wpapers/2016/0288.pdf
    File Function: Full text
    Download Restriction: no
    File URL: https://libkey.io/10.24149/gwp288?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Carmen M. Reinhart & Vincent R. Reinhart, 2009. "Capital Flow Bonanzas: An Encompassing View of the Past and Present," NBER International Seminar on Macroeconomics, University of Chicago Press, vol. 5(1), pages 9-62.
    2. Joshua Aizenman & Mahir Binici & Michael M. Hutchison, 2016. "The Transmission of Federal Reserve Tapering News to Emerging Financial Markets," International Journal of Central Banking, International Journal of Central Banking, vol. 12(2), pages 317-356, June.
    3. Rose, Andrew K. & Spiegel, Mark M., 2011. "Cross-country causes and consequences of the crisis: An update," European Economic Review, Elsevier, vol. 55(3), pages 309-324, April.
    4. 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.
    5. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
    6. Gian Maria Milesi Ferretti & Assaf Razin, 2000. "Current Account Reversals and Currency Crises: Empirical Regularities," NBER Chapters, in: Currency Crises, pages 285-323, National Bureau of Economic Research, Inc.
    7. Takatoshi Ito & Anne O. Krueger, 1996. "Financial Deregulation and Integration in East Asia," NBER Books, National Bureau of Economic Research, Inc, number ito_96-1.
    8. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
    9. Nicolas E. Magud & Carmen M. Reinhart & Esteban R. Vesperoni, 2014. "Capital Inflows, Exchange Rate Flexibility and Credit Booms," Review of Development Economics, Wiley Blackwell, vol. 18(3), pages 415-430, August.
    10. Eichengreen, Barry & Gupta, Poonam, 2015. "Tapering talk: The impact of expectations of reduced Federal Reserve security purchases on emerging markets," Emerging Markets Review, Elsevier, vol. 25(C), pages 1-15.
    11. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2007. "The external wealth of nations mark II: Revised and extended estimates of foreign assets and liabilities, 1970-2004," Journal of International Economics, Elsevier, vol. 73(2), pages 223-250, November.
    12. Iana Liadze & Ray Barrell & Professor E. Philip Davis, 2010. "The impact of global imbalances: Does the current account balance help to predict banking crises in OECD countries?," National Institute of Economic and Social Research (NIESR) Discussion Papers 351, National Institute of Economic and Social Research.
    13. Ms. Prachi Mishra & Mr. Kenji Moriyama & Mr. Papa M N'Diaye & Lam Nguyen, 2014. "Impact of Fed Tapering Announcements on Emerging Markets," IMF Working Papers 2014/109, International Monetary Fund.
    14. Ahmed, Shaghil & Zlate, Andrei, 2014. "Capital flows to emerging market economies: A brave new world?," Journal of International Money and Finance, Elsevier, vol. 48(PB), pages 221-248.
    15. Ito, Takatoshi & Krueger, Anne O. (ed.), 1996. "Financial Deregulation and Integration in East Asia," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226386713.
    16. Ronald I. McKinnon & Huw Pill, 1996. "Credible Liberalizations and International Capital Flows: The "Overborrowing Syndrome"," NBER Chapters, in: Financial Deregulation and Integration in East Asia, pages 7-50, National Bureau of Economic Research, Inc.
    17. Lane, Philip & Milesi-Ferretti, Gian Maria, "undated". "External Wealth of Nations," Instructional Stata datasets for econometrics extwealth, Boston College Department of Economics.
    18. Iana Liadze & Ray Barrell & Professor E. Philip Davis, 2010. "The impact of global imbalances: Does the current account balance help to predict banking crises in OECD countries?," National Institute of Economic and Social Research (NIESR) Discussion Papers 351, National Institute of Economic and Social Research.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ahmed, Shaghil & Coulibaly, Brahima & Zlate, Andrei, 2017. "International financial spillovers to emerging market economies: How important are economic fundamentals?," Journal of International Money and Finance, Elsevier, vol. 76(C), pages 133-152.
    2. Davis, J. Scott & Zlate, Andrei, 2023. "The global financial cycle and capital flows during the COVID-19 pandemic," European Economic Review, Elsevier, vol. 156(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Davis, J. Scott & Mack, Adrienne & Phoa, Wesley & Vandenabeele, Anne, 2016. "Credit booms, banking crises, and the current account," Journal of International Money and Finance, Elsevier, vol. 60(C), pages 360-377.
    2. Stijn Claessens & M. Ayhan Kose, 2013. "Financial Crises: Explanations, Types and Implications," CAMA Working Papers 2013-06, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    3. Pierre-Olivier Gourinchas & Maurice Obstfeld, 2012. "Stories of the Twentieth Century for the Twenty-First," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(1), pages 226-265, January.
    4. Bruce N. Lehmann & David M. Modest, 1985. "The Empirical Foundations of the Arbitrage Pricing Theory I: The Empirical Tests," NBER Working Papers 1725, National Bureau of Economic Research, Inc.
    5. Catão, Luis A.V. & Milesi-Ferretti, Gian Maria, 2014. "External liabilities and crises," Journal of International Economics, Elsevier, vol. 94(1), pages 18-32.
    6. Xiuping Hua & Anders C. Johansson & Xun Wang, 2017. "National and regional financial openness in China," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 15(2), pages 127-140, April.
    7. Davis, J. Scott, 2015. "The macroeconomic effects of debt- and equity-based capital inflows," Journal of Macroeconomics, Elsevier, vol. 46(C), pages 81-95.
    8. Ryota Nakatani, 2017. "The Effects of Productivity Shocks, Financial Shocks, and Monetary Policy on Exchange Rates: An Application of the Currency Crisis Model and Implications for Emerging Market Crises," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 53(11), pages 2545-2561, November.
    9. McQuade, Peter & Schmitz, Martin, 2017. "The great moderation in international capital flows: A global phenomenon?," Journal of International Money and Finance, Elsevier, vol. 73(PA), pages 188-212.
    10. Joseph Joyce, 2011. "Financial Globalization and Banking Crises in Emerging Markets," Open Economies Review, Springer, vol. 22(5), pages 875-895, November.
    11. Julian Caballero, 2012. "Do Surges in International Capital Inflows Influence the Likelihood of Banking Crises? Cross-Country Evidence on Bonanzas in Capital Inflows and Bonanza-Boom- Bust Cycles," Research Department Publications 4775, Inter-American Development Bank, Research Department.
    12. Maurice Obstfeld, 2014. "Never Say Never: Commentary on a Policymaker’s Reflections," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 62(4), pages 656-693, November.
    13. Lin, Chin-Shien & Khan, Haider A. & Chang, Ruei-Yuan & Wang, Ying-Chieh, 2008. "A new approach to modeling early warning systems for currency crises: Can a machine-learning fuzzy expert system predict the currency crises effectively?," Journal of International Money and Finance, Elsevier, vol. 27(7), pages 1098-1121, November.
    14. Calderón, César & Kubota, Megumi, 2013. "Sudden stops: Are global and local investors alike?," Journal of International Economics, Elsevier, vol. 89(1), pages 122-142.
    15. Mahir Binici & Aytül Ganioglu, 2021. "Net external position, financial development, and banking crisis," Empirical Economics, Springer, vol. 61(3), pages 1225-1251, September.
    16. Bush, Oliver & Farrant, Katie & Wright, Michelle, 2011. "Financial Stability Paper No 13: Reform of the International Monetary and Financial System," Bank of England Financial Stability Papers 13, Bank of England.
    17. Karatas, B., 2014. "Financial crisis and monetary policy," Other publications TiSEM 41e463f0-e122-4379-8db5-6, Tilburg University, School of Economics and Management.
    18. Laura Alfaro & Sebnem Kalemli-Ozcan & Vadym Volosovych, 2007. "Capital Flows in a Globalized World: The Role of Policies and Institutions," NBER Chapters, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices, and Consequences, pages 19-72, National Bureau of Economic Research, Inc.
    19. Bicaba, Zorobabel & Kapp, Daniel & Molteni, Francesco, 2014. "Stability periods between financial crises: The role of macroeconomic fundamentals and crises management policies," Economic Modelling, Elsevier, vol. 43(C), pages 346-360.
    20. Lorenzoni, Guido, 2014. "International Financial Crises," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 689-740, Elsevier.

    More about this item

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F3 - International Economics - - International Finance

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:feddgw:288. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Amy Chapman (email available below). General contact details of provider: https://edirc.repec.org/data/frbdaus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.