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Are EME indicators of vulnerability to financial crises decoupling from global factors?

Author

Listed:
  • Felices, Guillermo

    (Citi)

  • Wieladek, Tomasz

    (Bank of England)

Abstract

This paper assesses the extent to which common factors underlie indicators of vulnerability to financial crises in emerging market economies and whether this link is changing over time. We use a Bayesian dynamic common factor model to estimate their common component in a sample of up to 41 countries including both developed as well as emerging economies. This permits us to interpret the component in common to both of them as a global factor. We introduce time-variation into the model to investigate whether indicators are decoupling from global factors over time. While decoupling can be observed in a few cases, the exposure to global factors in most countries tends to fluctuate around the mean. Broadly speaking then, the answer is no.

Suggested Citation

  • Felices, Guillermo & Wieladek, Tomasz, 2011. "Are EME indicators of vulnerability to financial crises decoupling from global factors?," Bank of England working papers 410, Bank of England.
    • Handle: RePEc:boe:boeewp:0410
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    References listed on IDEAS

    as
    1. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1993. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 108-151, March.
    2. M. Ayhan Kose & Christopher Otrok & Eswar Prasad, 2012. "Global Business Cycles: Convergence Or Decoupling?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(2), pages 511-538, May.
    3. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Végh, 2003. "The Unholy Trinity of Financial Contagion," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 51-74, Fall.
    4. Mumtaz, Haroon & Surico, Paolo, 2008. "Evolving International Inflation Dynamics: Evidence from a Time-varying Dynamic Factor Model," CEPR Discussion Papers 6767, C.E.P.R. Discussion Papers.
    5. M. Ayhan Kose & Christopher Otrok & Charles H. Whiteman, 2003. "International Business Cycles: World, Region, and Country-Specific Factors," American Economic Review, American Economic Association, vol. 93(4), pages 1216-1239, September.
    6. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1993. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 108-151, March.
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    More about this item

    Keywords

    Financial crises; Bayesian dynamic common factor models; decoupling;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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