Riding Global Financial Waves: The Economic Impact of Global Financial Shocks on Emerging Market Economies
Gustavo Adler and
Camilo Tovar (ctovar@imf.org)
No 2012/188, IMF Working Papers from International Monetary Fund
Abstract:
Over the past two decades, most emerging market economies witnessed two key developments. A marked process of financial integration with the rest of the world, arguably turning these economies more vulnerable to global financial shocks; and an improvement of macroeconomic fundamentals, helping to increase their resiliency to these shocks. Against a backdrop of these opposing forces, are these economies more vulnerable to global financial shocks today than in the past? Have better fundamentals offset increasing financial integration? If so, what fundamentals matter most? We address these questions by examining the role of these two forces over the past two decades in amplifying or buffering the economic impact of these shocks. Our findings show that EMEs, with the exception of Emerging Europe, have become less vulnerable. Exchange rate flexibility and external sustainability are key determinants of the impact of these shocks, while the extent to which deeper financial integration is a source of vulnerability depends on the exchange rate regime.
Keywords: WP; GFS; price index; bond Index; global financial shocks; spillovers; emerging markets; S&P 500; EMES' vulnerability; exchange rate flexibility; VIX index; regime classification; IMF country staff report; VIX shock; Financial integration; Exchange rate flexibility; Emerging and frontier financial markets; Foreign assets; Global; Europe; Asia and Pacific (search for similar items in EconPapers)
Pages: 26
Date: 2012-07-01
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Citations: View citations in EconPapers (23)
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