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

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  • Felices, Guillermo

    ()
    (Citi)

  • Wieladek, Tomasz

    ()
    (Bank of England)

Abstract

This paper assesses the extent to which common factors underlie indicators of vulnerability to financial crises in emerging market economies 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

Paper provided by Bank of England in its series Bank of England working papers with number 410.

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Length: 37 pages
Date of creation: 21 Feb 2011
Date of revision:
Handle: RePEc:boe:boeewp:0410

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

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  1. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. V�gh, 2003. "The Unholy Trinity of Financial Contagion," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 51-74, Fall.
  2. Haroon Mumtaz & Paolo Surico, 2008. "Evolving international inflation dynamics: evidence from a time-varying dynamic factor model," Bank of England working papers 341, Bank of England.
  3. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1993. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 108-151, March.
  4. M. Ayhan Kose & Christopher Otrok & Charles H. Whiteman, 2003. "International Business Cycles: World, Region, and Country-Specific Factors," American Economic Review, American Economic Association, vol. 93(4), pages 1216-1239, September.
  5. M. Ayhan Kose & Eswar Prasad & Christopher Otrok, 2008. "Global Business Cycles," IMF Working Papers 08/143, International Monetary Fund.
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