Financial conditions and the business cycles in emerging markets

Gian Soave

Applied Economics Letters, 2020, vol. 27, issue 20, 1652-1658

Abstract: This article assesses the role of financial conditions in business cycles in emerging markets. Evidence from nonlinear vector autoregression (VAR) model relating macroeconomic variables to a proxy of financial conditions suggests that (a) stressful times occur with considerable frequency, about 28$$\% $$% of the time; (b) second moments of the main macroeconomic variables are regime-dependent, potentially more correlated with GDP and with larger volatility under financial distress conditions; (c) consumption is more volatile than GDP under both regular financial and financial distress condition; (d) duration of the financial instability period is estimated to be about 4.7 quarters; and (e) strong amplification effects exist, potentially related to the tightening of credit conditions.

Date: 2020
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DOI: 10.1080/13504851.2019.1708858

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