Beyond the Literature: What Policymakers Reveal About Financial Asset Overvaluation?

Lorenzo Menna, Rubens Moura and Martin Tobal
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Martin Tobal: Banco de México

No 369, Working Papers from Red Nacional de Investigadores en Economía (RedNIE)

Abstract: This paper explores how global shocks transmits to emerging market and developing economies (EMDEs) when assets in major financial centers are overvalued. While international organizations and historical experience have long warned about asset overvaluation, academic research has yet to scrutinize its role as a source of global financial vulnerability. Using a panel local projection model and plausibly exogenous shocks, we find that a tightening in global financial conditions raises sovereign spreads in EMDEs and the effect is amplified when assets are overvalued. Strong external balances help cushion this impact, which is particularly important in current context of elevated volatility

Keywords: Global Financial Cycle; Asset Overvaluation; Asset Pricing; Financial; Risk-taking (search for similar items in EconPapers)
Pages: 11 pages
Date: 2025-08
New Economics Papers: this item is included in nep-fdg and nep-ifn
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Persistent link: https://EconPapers.repec.org/RePEc:aoz:wpaper:369

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