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Riding Global Financial Waves

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Author Info

  • Gustavo Adler
  • Camilo Ernesto Tovar Mora

Abstract

Over the past two decades, most emerging market economies witnessed two key developments. A marked process of financial integration with the rest of the world, arguably turning these economies more vulnerable to global financial shocks; and an improvement of macroeconomic fundamentals, helping to increase their resiliency to these shocks. Against a backdrop of these opposing forces, are these economies more vulnerable to global financial shocks today than in the past? Have better fundamentals offset increasing financial integration? If so, what fundamentals matter most? We address these questions by examining the role of these two forces over the past two decades in amplifying or buffering the economic impact of these shocks. Our findings show that EMEs, with the exception of Emerging Europe, have become less vulnerable. Exchange rate flexibility and external sustainability are key determinants of the impact of these shocks, while the extent to which deeper financial integration is a source of vulnerability depends on the exchange rate regime.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/188.

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Length: 26
Date of creation: 01 Jul 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/188

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Related research

Keywords: Spillovers; Emerging markets; Economic conditions; Developing countries; External shocks; financial integration; exchange rate; exchange rate flexibility; foreign assets; international financial statistics; current account balance; trade shocks; foreign liabilities; exchange rate regime; net foreign assets; international financial; exchange rate pressures; exchange rate valuation; capital flows; globalization; de facto ? exchange rate regime; foreign asset; international investment; exchange rate policy; financial markets; nominal exchange rate; exchange rate regime classification; fixed exchange rate; exchange arrangements; external trade; exchange restrictions; exchange rate misalignment; fixed exchange rate regimes;

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References

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  1. Guillermo Calvo & Alejandro Izquierdo & Luis-Fernando Mejía, 2004. "On the empirics of Sudden Stops: the relevance of balance-sheet effects," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
  2. Yan Carrière–Swallow & Luis Felipe Céspedes, 2011. "The Impact of Uncertainty Shocks in Emerging Economies," Working Papers Central Bank of Chile 646, Central Bank of Chile.
  3. Reinhart, Carmen & Kaminsky, Graciela, 2008. "The center and the periphery: The globalization of financial turmoil," MPRA Paper 14100, University Library of Munich, Germany.
  4. Sebastian Sosa & Gustavo Adler, 2011. "Commodity Price Cycles," IMF Working Papers 11/283, International Monetary Fund.
  5. Guillermo A. Calvo & Ernesto Talvi, 2005. "Sudden Stop, Financial Factors and Economic Collpase in Latin America: Learning from Argentina and Chile," NBER Working Papers 11153, National Bureau of Economic Research, Inc.
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Cited by:
  1. Abdul Abiad & John C Bluedorn & Jaime Guajardo & Petia Topalova, 2012. "The Rising Resilience of Emerging Market and Developing Economies," IMF Working Papers 12/300, International Monetary Fund.
  2. Jean Pierre Allegret, 2012. "Responses of Monetary Authorities in Emerging Economies to International Financial Crises: What Do We Really know?," European Research Studies Journal, European Research Studies Journal, vol. 0(3), pages 3-32.
  3. Josifidis, Kosta & Allegret, Jean-Pierre & Gimet, Céline & Pucar, Emilija Beker, 2014. "Macroeconomic policy responses to financial crises in emerging European economies," Economic Modelling, Elsevier, vol. 36(C), pages 577-591.
  4. Gustavo Adler & Sebastian Sosa, 2013. "External Conditions and Debt Sustainability in Latin America," IMF Working Papers 13/27, International Monetary Fund.

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