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EME financial conditions: which global shocks matter?

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  • Lodge, David
  • Manu, Ana-Simona

Abstract

This paper provides a quantitative assessment of the relative importance of global structural shocks for changes in financial conditions across a sample of emerging market economies. We disentangle four key drivers of global financial markets (oil supply shocks, global economic news shocks, US-specific economic news shocks and US monetary shocks) and show that these global factors account for about half of the variation in risky asset prices across EMEs. The influence of global factors for EME interest rates and currencies is much smaller, suggesting that factors beyond the identified global shocks (e.g. domestic or regional shocks) might be more important. In contrast to the recent literature on the global financial cycle which has emphasised the prominent role of US monetary policy, we find that although US monetary shocks have some influence in shaping EME financial markets, the broader global environment plays a significantly stronger role. JEL Classification: E44, E52, G15

Suggested Citation

  • Lodge, David & Manu, Ana-Simona, 2019. "EME financial conditions: which global shocks matter?," Working Paper Series 2282, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20192282
    Note: 574602
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    Cited by:

    1. Lodge, David & Manu, Ana-Simona & Van Robays, Ine, 2024. "China's footprint in global financial markets," BOFIT Discussion Papers 1/2024, Bank of Finland Institute for Emerging Economies (BOFIT).
    2. Yildirim, Zekeriya, 2022. "Global financial risk, the risk-taking channel, and monetary policy in emerging markets," Economic Modelling, Elsevier, vol. 116(C).
    3. Nicolas Eterovic & Dalibor Eterovic, 2022. "Stocks, Bonds and the US Dollar - Measuring Domestic and International Market Developments in an Emerging Market," Working Papers Central Bank of Chile 964, Central Bank of Chile.

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    More about this item

    Keywords

    asset prices; emerging markets; financial conditions; global shocks; international financial markets; spillovers;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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