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

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  • Fabian Fink

    (Department of Economics, University of Konstanz, Germany)

  • Yves S. Schüler

    (Department of Economics, University of Konstanz, Germany)

Abstract

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.

Suggested Citation

  • Fabian Fink & Yves S. Schüler, 2013. "The Transmission of US Financial Stress: Evidence for Emerging Market Economies," Working Paper Series of the Department of Economics, University of Konstanz 2013-01, Department of Economics, University of Konstanz.
    • Handle: RePEc:knz:dpteco:1301
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    Cited by:

    1. Thanda Sithole & Beatrice D. Simo-Kengne & Modeste Some, 2017. "The role of financial conditions in transmitting external shocks to South Africa," International Economics, CEPII research center, issue 150, pages 36-56.
    2. Yves S. Schüler, 2014. "Asymmetric Effects of Uncertainty over the Business Cycle: A Quantile Structural Vector Autoregressive Approach," Working Paper Series of the Department of Economics, University of Konstanz 2014-02, Department of Economics, University of Konstanz.

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    More about this item

    Keywords

    Financial Stress Shocks; International Transmission; Emerging Markets; SVAR;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F30 - International Economics - - International Finance - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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