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Financial conditions and the business cycles in emerging markets

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  • Gian Paulo Soave

Abstract

This article assesses the role of financial conditions in business cycles in emerging markets. Evidence from nonlinear vector autoregression (VAR) model relating macroeconomic variables to a proxy of financial conditions suggests that (a) stressful times occur with considerable frequency, about 28$$\% $$% of the time; (b) second moments of the main macroeconomic variables are regime-dependent, potentially more correlated with GDP and with larger volatility under financial distress conditions; (c) consumption is more volatile than GDP under both regular financial and financial distress condition; (d) duration of the financial instability period is estimated to be about 4.7 quarters; and (e) strong amplification effects exist, potentially related to the tightening of credit conditions.

Suggested Citation

  • Gian Paulo Soave, 2020. "Financial conditions and the business cycles in emerging markets," Applied Economics Letters, Taylor & Francis Journals, vol. 27(20), pages 1652-1658, November.
    • Handle: RePEc:taf:apeclt:v:27:y:2020:i:20:p:1652-1658
    DOI: 10.1080/13504851.2019.1708858
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    Cited by:

    1. Xu, Yongan & Liang, Chao & Wang, Jianqiong, 2023. "Financial stress and returns predictability: Fresh evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 78(C).
    2. Gian Paulo Soave, 2023. "A panel threshold VAR with stochastic volatility-in-mean model: an application to the effects of financial and uncertainty shocks in emerging economies," Applied Economics, Taylor & Francis Journals, vol. 55(4), pages 397-431, January.

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