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Measuring Spillovers between the US and Emerging Markets

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  • Tom Pak Wing FongAuthor-Workplace-Name: Research Department, Hong Kong Monetary Authority
  • Ka Fai LiAuthor-Workplace-Name: Research Department, Hong Kong Monetary Authority
  • Angela Kin Wan Sze

    (Research Department, Hong Kong Monetary Authority)

Abstract

This paper evaluates the financial spillovers between the US and emerging market economies (EMEs) using the methodology advocated by Diebold and Yilmaz (2009). Based on (i) cross-asset returns of sovereign bond, equity, and foreign exchange, and (ii) 27 individual long-term sovereign bond yields, we consistently find that bond market spillovers between the US and EMEs have strengthened following the tapering tantrum in May 2013. This implies that a US monetary tightening would have potent spillovers on other economies, and especially on financial markets¡¯ performance outside the US particularly in EMEs. The repercussions from EMEs to US are also significant and would generate undue pressure on the US affecting subsequent policy actions. The two-way interactions between the US and EMEs can pose challenges for central banks in formulating policies independently.

Suggested Citation

  • Tom Pak Wing FongAuthor-Workplace-Name: Research Department, Hong Kong Monetary Authority & Ka Fai LiAuthor-Workplace-Name: Research Department, Hong Kong Monetary Authority & Angela Kin Wan Sze, 2016. "Measuring Spillovers between the US and Emerging Markets," Working Papers 082016, Hong Kong Institute for Monetary Research.
    • Handle: RePEc:hkm:wpaper:082016
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    References listed on IDEAS

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    More about this item

    Keywords

    Spillovers; contagion; systemic risk; financial integration; vector autoregression; emerging markets; monetary policy normalisation; sovereign bond markets.;
    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
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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