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Beyond the Literature: What Policymakers Reveal About Financial Asset Overvaluation?

Author

Listed:
  • Lorenzo Menna

    (Banco de México)

  • Rubens Moura

    (Banco de México)

  • Martin Tobal

    (Banco de México)

Abstract

This paper explores how global shocks transmits to emerging market and developing economies (EMDEs) when assets in major financial centers are overvalued. While international organizations and historical experience have long warned about asset overvaluation, academic research has yet to scrutinize its role as a source of global financial vulnerability. Using a panel local projection model and plausibly exogenous shocks, we find that a tightening in global financial conditions raises sovereign spreads in EMDEs and the effect is amplified when assets are overvalued. Strong external balances help cushion this impact, which is particularly important in current context of elevated volatility

Suggested Citation

  • Lorenzo Menna & Rubens Moura & Martin Tobal, 2025. "Beyond the Literature: What Policymakers Reveal About Financial Asset Overvaluation?," Working Papers 369, Red Nacional de Investigadores en Economía (RedNIE).
    • Handle: RePEc:aoz:wpaper:369
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    File URL: https://rednie.eco.unc.edu.ar/files/DT/369.pdf
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