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How Important are Spillovers from Major Emerging Markets?

Listed author(s):
  • Raju Huidrom

    ()

    (WorldBank, Development Prospects Group)

  • M. Ayhan Kose

    ()

    (WorldBank, Development Prospects Group; Brookings Institution; CEPR, and CAMA)

  • Franziska L. Ohnsorge

    ()

    (WorldBank, Development Prospects Group; CAMA)

The seven largest emerging market economies -China, India, Brazil, Russia, Mexico, Indonesia, and Turkey- constituted more than one-quarter of global output and more than half of global output growth during 2010-15.These emerging markets, which we call EM7,are also closely integrated with other countries, especially with other emerging and frontier markets. Given their size and integration, growth in EM7 could have significant cross-border spillovers. We provide empirical estimates of these spillovers using a Bayesian vector auto regression model. We report three main results. First, spillovers from EM7 are sizeable: a 1 percentage point increase in EM7 growth is associated with a 0.9 percentage point increase in growth in other emerging and frontier markets and a 0.6 percentage point increase in world growth at the end of three years. Second, sizeable as they are, spillovers from EM7 are still smaller than those from G7 countries (Group of Seven of advanced economies). Specifically, growth in other emerging and frontier markets, and the global economy would increase by one-half to three times more due to a similarly sized increase in G7 growth. Third, among the EM7, spillovers from China are the largest and permeate globally.

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File URL: http://eaf.ku.edu.tr/sites/eaf.ku.edu.tr/files/erf_wp_1710.pdf
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Paper provided by Koc University-TUSIAD Economic Research Forum in its series Koç University-TUSIAD Economic Research Forum Working Papers with number 1710.

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Length: 30 pages
Date of creation: May 2017
Handle: RePEc:koc:wpaper:1710
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  1. Diego Comin & Norman Loayza & Farooq Pasha & Luis Serven, 2014. "Medium Term Business Cycles in Developing Countries," American Economic Journal: Macroeconomics, American Economic Association, vol. 6(4), pages 209-245, October.
  2. Claessens, Stijn & Kose, M. Ayhan & Terrones, Marco E., 2012. "How do business and financial cycles interact?," Journal of International Economics, Elsevier, vol. 87(1), pages 178-190.
  3. Diebold, Francis X. & Yilmaz, Kamil, 2015. "Financial and Macroeconomic Connectedness: A Network Approach to Measurement and Monitoring," OUP Catalogue, Oxford University Press, number 9780199338306.
  4. Neumeyer, Pablo A. & Perri, Fabrizio, 2005. "Business cycles in emerging economies: the role of interest rates," Journal of Monetary Economics, Elsevier, vol. 52(2), pages 345-380, March.
  5. Lubik, Thomas A. & Schorfheide, Frank, 2007. "Do central banks respond to exchange rate movements? A structural investigation," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1069-1087, May.
  6. Jordi Galí & Tommaso Monacelli, 2005. "Monetary Policy and Exchange Rate Volatility in a Small Open Economy," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 707-734.
  7. Kose, M. Ayhan, 2002. "Explaining business cycles in small open economies: 'How much do world prices matter?'," Journal of International Economics, Elsevier, vol. 56(2), pages 299-327, March.
  8. Tatiana Didier & M. Ayhan Kose & Franziska Ohnsorge & Lei Sandy Ye1, 2015. "Slowdown in Emerging Markets: Rough Patch or Prolonged Weakness?," Policy Research Notes (PRNs) 101741, The World Bank.
  9. Eickmeier, Sandra, 2007. "Business cycle transmission from the US to Germany--A structural factor approach," European Economic Review, Elsevier, vol. 51(3), pages 521-551, April.
  10. Litterman, Robert B, 1986. "Forecasting with Bayesian Vector Autoregressions-Five Years of Experience," Journal of Business & Economic Statistics, American Statistical Association, vol. 4(1), pages 25-38, January.
  11. Canova, Fabio & Marrinan, Jane, 1998. "Sources and propagation of international output cycles: Common shocks or transmission?," Journal of International Economics, Elsevier, vol. 46(1), pages 133-166, October.
  12. Kose, M. Ayhan & Prasad, Eswar S. & Terrones, Marco E., 2009. "Does financial globalization promote risk sharing?," Journal of Development Economics, Elsevier, vol. 89(2), pages 258-270, July.
  13. Jaime Espinosa-Bowen & Nadeem Ilahi & Fahad Alturki, 2009. "How Russia Affects the Neighborhood - Trade, Financial, and Remittance Channels," IMF Working Papers 09/277, International Monetary Fund.
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