Are emerging market indicators of vulnerability to financial crises decoupling from global factors?

Guillermo Felices and Tomasz Wieladek

Journal of Banking & Finance, 2012, vol. 36, issue 2, 321-331

Abstract: This paper assesses the extent to which common factors underlie indicators of vulnerability to financial crises in emerging market economies (EMEs) and whether this link is changing over time. We use a Bayesian dynamic common factor model to estimate their common component in a sample of up to 41 countries including both developed as well as emerging economies. This permits us to interpret the component in common to both of them as a global factor. We introduce time variation into the model to investigate whether indicators are decoupling from global factors over time. While decoupling can be observed in a few cases, the exposure to global factors in most countries tends to fluctuate around the mean. Broadly speaking then, the answer is no.

Keywords: Financial crises; Bayesian dynamic common factor models; Decoupling (search for similar items in EconPapers)
JEL-codes: C11 C22 F34 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:36:y:2012:i:2:p:321-331

DOI: 10.1016/j.jbankfin.2011.06.013

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