Financial Vulnerability and Risks to Growth in Emerging Markets

Viral Acharya, Soumya Bhadury and Jay Surti ()

No 27411, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper introduces a new financial vulnerability index for emerging market economies by exploiting key differences in their business cycles relative to those of advanced economies. Information on the domestic price of risk, cost of dollar hedging and market-based measures of bank vulnerability combine to generate indexes significantly more effective in capturing macro-financial vulnerability and stress compared to those based on information in trade and global factors. Our index significantly augments early warning surveillance capacity, as evidenced by out-of-sample forecasting gains around a majority of turning points in GDP growth, relative to distributed lag models that are augmented with information from macro-financial indexes that are custom-built to optimize such forecasts.

JEL-codes: C53 E32 E44 (search for similar items in EconPapers)
Date: 2020-06
New Economics Papers: this item is included in nep-fdg, nep-for, nep-mac and nep-ore
Note: EFG IFM
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Citations: View citations in EconPapers (3)

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Working Paper: Financial Vulnerability and Risks to Growth in Emerging Markets (2020)
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