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EME financial conditions: Which global shocks matter?

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  • Lodge, David
  • Manu, Ana-Simona

Abstract

We quantify the importance of global structural shocks for changes in daily financial conditions in emerging market economies (EMEs). We disentangle key drivers of global financial markets by separating those that originate in the United States (including US monetary and economic news shocks) from shocks that reflect oil supply and shifts in global risk sentiment. We confirm the existing literature that global factors influence EME financial conditions, albeit the transmission of global shocks differs across financial variables, with equities and sovereign spreads more strongly affected than interest rates and currencies. Nonetheless, on average, countries retain some influence on their own financial conditions. Finally, in contrast to the recent literature on the global financial cycle which has emphasised the prominent role of US monetary policy, we find that the broader global environment, reflecting in particular shifts in global risk sentiment, plays a significantly stronger role in driving variations in EME financial conditions.

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  • Lodge, David & Manu, Ana-Simona, 2022. "EME financial conditions: Which global shocks matter?," Journal of International Money and Finance, Elsevier, vol. 120(C).
    • Handle: RePEc:eee:jimfin:v:120:y:2022:i:c:s0261560621001303
    DOI: 10.1016/j.jimonfin.2021.102479
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    2. Nicolas Eterovic & Dalibor Eterovic, 2022. "Stocks, Bonds and the US Dollar - Measuring Domestic and International Market Developments in an Emerging Market," Working Papers Central Bank of Chile 964, Central Bank of Chile.

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    More about this item

    Keywords

    Global shocks; International financial markets; Asset prices; Financial conditions; Emerging markets; Spillovers;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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