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Are emerging market indicators of vulnerability to financial crises decoupling from global factors?

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Author Info

  • Felices, Guillermo
  • Wieladek, Tomasz

Abstract

This paper assesses the extent to which common factors underlie indicators of vulnerability to financial crises in emerging market economies (EMEs) and whether this link is changing over time. We use a Bayesian dynamic common factor model to estimate their common component in a sample of up to 41 countries including both developed as well as emerging economies. This permits us to interpret the component in common to both of them as a global factor. We introduce time variation into the model to investigate whether indicators are decoupling from global factors over time. While decoupling can be observed in a few cases, the exposure to global factors in most countries tends to fluctuate around the mean. Broadly speaking then, the answer is no.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 36 (2012)
Issue (Month): 2 ()
Pages: 321-331

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Handle: RePEc:eee:jbfina:v:36:y:2012:i:2:p:321-331

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Web page: http://www.elsevier.com/locate/jbf

Related research

Keywords: Financial crises; Bayesian dynamic common factor models; Decoupling;

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References

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Cited by:
  1. Gary Koop & Dimitris Korobilis, 2013. "A new index of financial conditions," Working Papers 1307, University of Strathclyde Business School, Department of Economics.
  2. Edgardo Cayon & Susan Thorp, 2013. "Financial Autarchy as Contagion Prevention: The Case of Colombian Pension Funds," Research Paper Series 323, Quantitative Finance Research Centre, University of Technology, Sydney.
  3. Köksal, Bülent & Orhan, Mehmet, 2012. "Market risk of developed and developing countries during the global financial crisis," MPRA Paper 37523, University Library of Munich, Germany.
  4. Korhonen, Iikka & Peresetsky , Anatoly, 2013. "Extracting global stochastic trend from non-synchronous data," BOFIT Discussion Papers 15/2013, Bank of Finland, Institute for Economies in Transition.

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