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The Transmission of US Financial Stress: Evidence for Emerging Market Economies

  • Fabian Fink

    ()

    (Department of Economics, University of Konstanz, Germany)

  • Yves S. Schüler

    ()

    (Department of Economics, University of Konstanz, Germany)

Registered author(s):

    We provide empirical evidence that US financial stress shocks (US-FSSs) are an important driver for economic dynamics and fluctuations in emerging market economies (EMEs). Applying a structural vector auto regression, we analyze the international transmission of US-FSSs to eight EMEs using monthly data from 1999 to 2012. US-FSSs are identified as unexpected changes in the financial conditions index of the Federal Reserve Bank of Chicago. Findings indicate that a typical EME experiences similar negative effects as the US economy in response to US-FSSs. Our results emphasize that the transmission through international financial interconnections is dominant, while contagion through trade is inessential. Further, with regard to fluctuations in real economic activity, US-FSSs are as important as all other external factors jointly. In general, US-FSSs represent a crucial driver for volatility in the emerging world; also at business cycle frequencies.

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    File URL: http://www.wiwi.uni-konstanz.de/workingpaperseries/WP_01-Fink-Schueler_2013.pdf
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    Paper provided by Department of Economics, University of Konstanz in its series Working Paper Series of the Department of Economics, University of Konstanz with number 2013-01.

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    Length: 29 pages
    Date of creation: 18 Jan 2013
    Date of revision:
    Handle: RePEc:knz:dpteco:1301
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