Emerging economies in the 2000s: real decoupling and financial recoupling

Eduardo Levy Yeyati and Tomas Williams

No 5961, Policy Research Working Paper Series from The World Bank

Abstract: The paper documents an intriguing development in the emerging world in the 2000s: a decoupling from the business cycle of advanced countries, combined with the strengthening of the co-movements in the main emerging market assets that predates the synchronized sell-off during the crisis. In addition, the paper tests the hypothesis that financial globalization, to the extent that it creates a common, global investor base for emerging markets, could lead to a tighter asset correlation despite the weaker economic ties. While an examination of the impact of alternative financial globalization proxies does not yield conclusive results, a closer look at global emerging market equity and bond funds shows that the latter indeed foster financial recoupling during downturns, reflecting the fact that they trade near their respective benchmarks and respond to withdrawals by liquidating holdings across the board.

Keywords: Debt Markets; Mutual Funds; Emerging Markets; Currencies and Exchange Rates; Economic Theory&Research (search for similar items in EconPapers)
Date: 2012-02-01
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Citations: View citations in EconPapers (47)

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Related works:
Journal Article: Emerging economies in the 2000s: Real decoupling and financial recoupling (2012)
Working Paper: Emerging economies in the 2000s:Real decoupling and financial recoupling (2011)
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