Riding Global Financial Waves: The Economic Impact of Global Financial Shocks on Emerging Market Economies

July 1, 2012

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Gustavo Adler, and Camilo E Tovar Mora. Riding Global Financial Waves: The Economic Impact of Global Financial Shocks on Emerging Market Economies, (USA: International Monetary Fund, 2012) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Over the past two decades, most emerging market economies witnessed two key developments. A marked process of financial integration with the rest of the world, arguably turning these economies more vulnerable to global financial shocks; and an improvement of macroeconomic fundamentals, helping to increase their resiliency to these shocks. Against a backdrop of these opposing forces, are these economies more vulnerable to global financial shocks today than in the past? Have better fundamentals offset increasing financial integration? If so, what fundamentals matter most? We address these questions by examining the role of these two forces over the past two decades in amplifying or buffering the economic impact of these shocks. Our findings show that EMEs, with the exception of Emerging Europe, have become less vulnerable. Exchange rate flexibility and external sustainability are key determinants of the impact of these shocks, while the extent to which deeper financial integration is a source of vulnerability depends on the exchange rate regime.

Subject: Emerging and frontier financial markets, Exchange rate flexibility, External debt, External position, Financial integration, Financial markets, Foreign assets, Foreign exchange

Keywords: Asia and Pacific, Bond Index, Emerging and frontier financial markets, Emerging markets, EMES' vulnerability, Europe, Exchange rate flexibility, Exchange rate flexibility, Financial integration, Foreign assets, GFS, Global, Global financial shocks, IMF country staff report, Price index, Regime classification, S&P 500, Spillovers, VIX index, VIX shock, WP

Publication Details

Pages:

26
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/188
Stock No:

WPIEA2012188
ISBN:

9781475505368
ISSN:

1018-5941

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