Country Transparency and the Global Transmission of Financial Shocks

By Luis Brandão-Marques, Gaston Gelos, Natalia Melgar

July 3, 2013

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Luis Brandão-Marques, Gaston Gelos, and Natalia Melgar. Country Transparency and the Global Transmission of Financial Shocks, (USA: International Monetary Fund, 2013) 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

This paper considers the role of country-level opacity (the lack of availability of information) in amplifying shocks emanating from financial centers. We provide a simple model where, in the presence of ambiguity (uncertainty about the probability distribution of returns), prices in emerging markets react more strongly to signals from the developed market, the more opaque the emerging market is. The second contribution is empirical evidence for bond and equity markets in line with this prediction. Increasing the availability of information about public policies, improving accounting standards, and enhancing legal frameworks can help reduce the unpleasant side effects of financial globalization.

Subject: Accounting standards, Bonds, Capital flows, Emerging and frontier financial markets, Financial crises, Financial institutions, Financial markets, Public financial management (PFM), Stocks

Keywords: Accounting standards, Bonds, Country MSCI index, Country risk, Dividend yield, Emerging and frontier financial markets, Emerging market asset, Emerging markets, Equilibrium condition, Financial market, Global, Government policies Index, Index return, Market equilibrium condition, Policies Index, PricewaterhouseCoopers' Opacity Index, PWC opacity index, PWC opacity Index, PWC Opacity Index, Sovereign bond index return, Stocks, Transmission of global financial shocks, Transparency, U.S. dollar, WP

Publication Details

Pages:

38
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/156
Stock No:

WPIEA2013156
ISBN:

9781484397237
ISSN:

1018-5941

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