On foreign drivers of emerging markets fluctuations

Gent Bajraj, Jorge Lorca and Juan M. Wlasiuk

Economic Modelling, 2023, vol. 129, issue C

Abstract: We quantify the fraction of business cycles fluctuations in emerging markets explained by the combined dynamics of a set of common external drivers. By means of specific constraints on a state-space model fitted to a panel of real, financial and commodity price data for twelve emerging economies, we single out financial, commodity and growth common factors driving jointly a third of GDP fluctuations. Our partition of foreign shocks faced by emerging markets offers new insights into the primitive sources of emerging market cycles and feeds policy discussions in terms of the effects of global financial cycles versus commodity prices. Even when we control for the presence of financial cycles, fluctuations in commodity prices play a predominant role on the performance of emerging markets.

Keywords: Emerging economies; Common factors; State space models (search for similar items in EconPapers)
JEL-codes: C32 C38 F44 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:129:y:2023:i:c:s0264999323003450

DOI: 10.1016/j.econmod.2023.106533

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