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On foreign drivers of emerging markets fluctuations

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  • Bajraj, Gent
  • Lorca, Jorge
  • Wlasiuk, Juan M.

Abstract

We quantify the fraction of business cycles fluctuations in emerging markets explained by the combined dynamics of a set of common external drivers. By means of specific constraints on a state-space model fitted to a panel of real, financial and commodity price data for twelve emerging economies, we single out financial, commodity and growth common factors driving jointly a third of GDP fluctuations. Our partition of foreign shocks faced by emerging markets offers new insights into the primitive sources of emerging market cycles and feeds policy discussions in terms of the effects of global financial cycles versus commodity prices. Even when we control for the presence of financial cycles, fluctuations in commodity prices play a predominant role on the performance of emerging markets.

Suggested Citation

  • Bajraj, Gent & Lorca, Jorge & Wlasiuk, Juan M., 2023. "On foreign drivers of emerging markets fluctuations," Economic Modelling, Elsevier, vol. 129(C).
    • Handle: RePEc:eee:ecmode:v:129:y:2023:i:c:s0264999323003450
    DOI: 10.1016/j.econmod.2023.106533
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    More about this item

    Keywords

    Emerging economies; Common factors; State space models;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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