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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; transparency; emerging markets; transmission of global financial shocks;

This paper has been announced in the following NEP Reports:

References

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  17. Didier, Tatiana & Love, Inessa & Peria, Maria Soledad Martinez, 2010. "What explains stock markets'vulnerability to the 2007-2008 crisis ?," Policy Research Working Paper Series 5224, The World Bank.
  18. Laura E. Kodres & Kristian Hartelius & Kenichiro Kashiwase, 2008. "Emerging Market Spread Compression: Is it Real or is it Liquidity?," IMF Working Papers 08/10, International Monetary Fund.
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Cited by:
  1. Forssbaeck, Jens & Oxel, Lars, 2014. "The Multi-faceted Concept of Transparency," Working Paper Series 1013, Research Institute of Industrial Economics.

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