The Transmission of US Financial Stress: Evidence for Emerging Market Economies

Fabian Fink and Yves Schüler

No 2013-01, Working Paper Series of the Department of Economics, University of Konstanz from Department of Economics, University of Konstanz

Abstract: We provide empirical evidence that US financial stress shocks (US-FSSs) are an important driver for economic dynamics and fluctuations in emerging market economies (EMEs). Applying a structural vector auto regression, we analyze the international transmission of US-FSSs to eight EMEs using monthly data from 1999 to 2012. US-FSSs are identified as unexpected changes in the financial conditions index of the Federal Reserve Bank of Chicago. Findings indicate that a typical EME experiences similar negative effects as the US economy in response to US-FSSs. Our results emphasize that the transmission through international financial interconnections is dominant, while contagion through trade is inessential. Further, with regard to fluctuations in real economic activity, US-FSSs are as important as all other external factors jointly. In general, US-FSSs represent a crucial driver for volatility in the emerging world; also at business cycle frequencies.

Keywords: Financial Stress Shocks; International Transmission; Emerging Markets; SVAR (search for similar items in EconPapers)
JEL-codes: E44 F30 G10 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2013-01-18
New Economics Papers: this item is included in nep-cba and nep-mac
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Citations: View citations in EconPapers (1)

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Working Paper: The Transmission of US Financial Stress: Evidence for Emerging Market Economies (2013)
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