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EME financial conditions: Which global shocks matter?

David Lodge and Ana-Simona Manu

Journal of International Money and Finance, 2022, vol. 120, issue C

Abstract: We quantify the importance of global structural shocks for changes in daily financial conditions in emerging market economies (EMEs). We disentangle key drivers of global financial markets by separating those that originate in the United States (including US monetary and economic news shocks) from shocks that reflect oil supply and shifts in global risk sentiment. We confirm the existing literature that global factors influence EME financial conditions, albeit the transmission of global shocks differs across financial variables, with equities and sovereign spreads more strongly affected than interest rates and currencies. Nonetheless, on average, countries retain some influence on their own financial conditions. Finally, in contrast to the recent literature on the global financial cycle which has emphasised the prominent role of US monetary policy, we find that the broader global environment, reflecting in particular shifts in global risk sentiment, plays a significantly stronger role in driving variations in EME financial conditions.

Keywords: Global shocks; International financial markets; Asset prices; Financial conditions; Emerging markets; Spillovers (search for similar items in EconPapers)
JEL-codes: E44 E52 G15 (search for similar items in EconPapers)
Date: 2022
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Working Paper: EME financial conditions: which global shocks matter? (2019) Downloads
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DOI: 10.1016/j.jimonfin.2021.102479

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