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The Transmission of Financial Stress From Advanced to Emerging Economies

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Author Info

  • Stephan Danninger
  • Irina Tytell
  • Ravi Balakrishnan
  • Selim Elekdag

Abstract

This paper studies how financial stress is transmitted from advanced to emerging economies, using a new financial stress index for emerging economies. An episode of financial stress is defined as a period when the financial system''s ability to intermediate may be impaired. Previous financial crises in advanced economies passed through strongly and rapidly to emerging economies. In line with this pattern, the unprecedented spike in financial stress in advanced economies elevated financial stress across emerging economies above levels seen during the Asian crisis, but with significant cross-country variation. The extent of pass-through of financial stress is related to the depth of financial linkages between advanced and emerging economies. The paper finds that higher current account and fiscal balances do little to insulate emerging economies from the transmission of financial stress in advanced economies. However, they may help dampen the impact on the real sector of emerging economies and help reestablish financial stability and foreign capital inflows once financial stress subsides.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/133.

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Length: 52
Date of creation: 01 Jun 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/133

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Related research

Keywords: Banking crisis; Banking sector; Capital flows; Developed countries; Developing countries; Economic models; Emerging markets; Financial risk; Spillovers; Transition economies; emerging economies; banking; bank lending; banking crises; parameters; bank linkages; foreign exchange; bank for international settlements; banking sectors; debt restructuring; systemic banking crisis; bank liabilities; bank claims; banking system; bank ownership; banks ? balance sheets; bank of england; banking systems; regulatory forbearance; investment bank; interbank market; banking statistics; bank capital; bank crisis; banking structure; bank subsidiaries;

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References

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