Financial Stress in Emerging Markets: The Tail-Risk Trade-Offs Between Growth and Financial Stability Policies

David de Villiers (), Hylton Hollander and Dawie Van Lill ()
Additional contact information
David de Villiers: Stellenbosch University
Authors registered in the RePEc Author Service: John Manuel Luiz

No 146, ERSA Working Paper Series from Economic Research Southern Africa

Abstract: We apply quantile regressions to analyse how macroprudential policies and capital controls affect the spillover of financial stress on future economic growth in emerging markets. Our findings reveal a key intertemporal trade-off: macroprudential policies, while dampening short-term growth, enhance economic resilience and support long-term growth. In contrast, capital controls do not present this trade-off and are most effective during periods of strong economic performance. The results suggest that shrinking economies should prioritize domestic financial stability, while growing economies should focus on protecting against external financial instability. We contribute to the literature by refining and extending the financial stress indicator for a group of 27 emerging markets from 1996Q1 to 2022Q4 and demonstrate the distinct roles of these policies across different stages of the economic growth distribution.

Keywords: Macroprudential Policy; capital controls; growth-at-risk; financial stability (search for similar items in EconPapers)
JEL-codes: C23 C32 E44 F38 G01 G28 (search for similar items in EconPapers)
Date: 2025-08
References: Add references at CitEc
Citations:

Published in ERSA Working Paper Series, August 2025

Downloads: (external link)
https://ersawps.org/index.php/working-paper-series/article/view/146/163 First version, 2025 (application/pdf)

Related works:
Journal Article: Financial stress in emerging markets: The tail-risk trade-offs between growth and financial stability policies (2026)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rza:ersawp:146

Access Statistics for this paper

More papers in ERSA Working Paper Series from Economic Research Southern Africa
Bibliographic data for series maintained by Maggi Sigg ().