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Riding Global Financial Waves

Gustavo Adler and Camilo Ernesto Tovar ()

No 12/188, 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: Spillovers; Emerging markets; Economic conditions; Developing countries; External shocks; financial integration, exchange rate, exchange rate flexibility, foreign assets, international financial statistics, current account balance, trade shocks, foreign liabilities, exchange rate regime, net foreign assets, international financial, exchange rate pressures, exchange rate valuation, capital flows, globalization, de facto ? exchange rate regime, foreign asset, international investment, exchange rate policy, financial markets, nominal exchange rate, exchange rate regime classification, fixed exchange rate, exchange arrangements, external trade, exchange restrictions, exchange rate misalignment, fixed exchange rate regimes (search for similar items in EconPapers)
Date: 2012-07-01
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