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

Author

Listed:
  • Gustavo Adler
  • Mr. Camilo E Tovar Mora
Abstract
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.

Suggested Citation

  • Gustavo Adler & Mr. Camilo E Tovar Mora, 2012. "Riding Global Financial Waves: The Economic Impact of Global Financial Shocks on Emerging Market Economies," IMF Working Papers 2012/188, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2012/188
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Sithole, Thanda & Simo-Kengne, Beatrice D. & Some, Modeste, 2017. "The role of financial conditions in transmitting external shocks to South Africa," International Economics, Elsevier, vol. 150(C), pages 36-56.
    2. Jean Pierre Allegret, 2012. "Responses of Monetary Authorities in Emerging Economies to International Financial Crises: What Do We Really know?," European Research Studies Journal, European Research Studies Journal, vol. 0(3), pages 3-32.
    3. Abiad, Abdul & Bluedorn, John & Guajardo, Jaime & Topalova, Petia, 2015. "The Rising Resilience of Emerging Market and Developing Economies," World Development, Elsevier, vol. 72(C), pages 1-26.
    4. Jean‐Pierre Allegret & Audrey Allegret, 2019. "Did foreign exchange holding influence growth performance during the global financial crisis?," The World Economy, Wiley Blackwell, vol. 42(3), pages 680-710, March.
    5. Christian von Haldenwang & Maksym Ivanyna, 2017. "Does the political resource curse affect public finance? The vulnerability of tax revenue in resource-rich countries," WIDER Working Paper Series 007, World Institute for Development Economic Research (UNU-WIDER).
    6. Carlos Andrés BALLESTEROS RUIZ & Javier Andrés ROJAS AGUILERA, 2015. "International shocks and the Colombian economy: A Global VAR Approach," Archivos de Economía 13012, Departamento Nacional de Planeación.
    7. International Monetary Fund, 2017. "Philippines: Selected Issues," IMF Staff Country Reports 2017/335, International Monetary Fund.
    8. Dąbrowski, Marek A. & Wróblewska, Justyna, 2016. "Exchange rate as a shock absorber in Poland and Slovakia: Evidence from Bayesian SVAR models with common serial correlation," Economic Modelling, Elsevier, vol. 58(C), pages 249-262.
    9. Josifidis, Kosta & Allegret, Jean-Pierre & Gimet, Céline & Pucar, Emilija Beker, 2014. "Macroeconomic policy responses to financial crises in emerging European economies," Economic Modelling, Elsevier, vol. 36(C), pages 577-591.
    10. Akdi, Yilmaz & Varlik, Serdar & Berument, M. Hakan, 2020. "Duration of Global Financial Cycles," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 549(C).
    11. Nijat Guliyev, 2018. "The effects of external shocks on Azerbaijan economy," Working Papers 1802, Central Bank of Azerbaijan Republic.
    12. Gustavo Adler & Mr. Sebastian Sosa, 2013. "External Conditions and Debt Sustainability in Latin America," IMF Working Papers 2013/027, International Monetary Fund.
    13. repec:wsr:wpaper:y:2015:i:145 is not listed on IDEAS
    14. Ben Zeev, Nadav, 2019. "Global credit supply shocks and exchange rate regimes," Journal of International Economics, Elsevier, vol. 116(C), pages 1-32.
    15. Almansour, Aseel & Aslam, Aqib & Bluedorn, John & Duttagupta, Rupa, 2015. "How vulnerable are emerging markets to external shocks?," Journal of Policy Modeling, Elsevier, vol. 37(3), pages 460-483.
    16. Donal Smith, 2016. "The International Impact of Financial Shocks: A Global VAR and Connectedness Measures Approach," Discussion Papers 16/07, Department of Economics, University of York.
    17. Kutu Adebayo Augustine & Ngalawa Harold, 2017. "Monetary Policy and Industrial Output in the BRICS Countries: A Markov-Switching Model," Folia Oeconomica Stetinensia, Sciendo, vol. 17(2), pages 35-55, December.
    18. Dąbrowski, Marek A. & Wróblewska, Justyna, 2015. "Exchange rate as a shock absorber or a shock propagator in Poland and Slovakia - an approach based on Bayesian SVAR models with common serial correlation," MPRA Paper 61441, University Library of Munich, Germany.
    19. Sharada Nia Davidson, 2022. "Regional Integration and Decoupling in the Asia Pacific: A Bayesian Panel VAR Approach," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 70(4), pages 773-807, December.
    20. Christian von Haldenwang & Maksym Ivanyna, 2017. "Does the political resource curse affect public finance?: The vulnerability of tax revenue in resource-rich countries," WIDER Working Paper Series wp-2017-7, World Institute for Development Economic Research (UNU-WIDER).
    21. Luis Arturo Bárcenas & Lorena Barreiro & Carolina Pagliacci, 2016. "What Is the Role of Size in Latin American Banks’ Performancein Response to External Shocks?," Monetaria, Centro de Estudios Monetarios Latinoamericanos, CEMLA, vol. 0(2), pages 233-273, july-dece.

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