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Country Transparency and the Global Transmission of Financial Shocks

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Author Info

  • Luís Brandão Marques
  • Gaston Gelos
  • Natalia Melgar

Abstract

This paper considers the role of country-level opacity (the lack of availability of information) in amplifying shocks emanating from financial centers. We provide a simple model where, in the presence of ambiguity (uncertainty about the probability distribution of returns), prices in emerging markets react more strongly to signals from the developed market, the more opaque the emerging market is. The second contribution is empirical evidence for bond and equity markets in line with this prediction. Increasing the availability of information about public policies, improving accounting standards, and enhancing legal frameworks can help reduce the unpleasant side effects of financial globalization.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/156.

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Length: 38
Date of creation: 03 Jul 2013
Date of revision:
Handle: RePEc:imf:imfwpa:13/156

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Related research

Keywords: External shocks; Financial systems; Emerging markets; Stock markets; Bond markets; Transparency; Economic models; transmission of global financial shocks; stock returns; equity markets; bond spreads; bond returns; financial economics; currency crisis; bonds; financial markets; bond yields; currency crises; sovereign bond; financial globalization; stock prices; international capital; financial stability; financial contagion; emerging markets stock; stock options; international financial markets; crowding out; currency risk; emerging market bond; cash flows; bond index;

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References

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Citations

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Cited by:
  1. Eugenio Cerutti & Stijn Claessens & Lev Ratnovski, 2014. "Global Liquidity and Drivers of Cross-Border Bank Flows," IMF Working Papers 14/69, International Monetary Fund.
  2. Forssbaeck, Jens & Oxel, Lars, 2014. "The Multi-faceted Concept of Transparency," Working Paper Series, Research Institute of Industrial Economics 1013, Research Institute of Industrial Economics.
  3. Serkan Arslanalp & Takahiro Tsuda, 2014. "Tracking Global Demand for Emerging Market Sovereign Debt," IMF Working Papers 14/39, International Monetary Fund.

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