Dependence of �Fragile Five" and �Troubled Ten" Emerging Markets' Financial System to US Monetary Policy and Monetary Policy Uncertainty

In this study, we aim to measure the dependence between financial markets of certain emerging market countries to the US monetary policy and monetary policy uncertainty. To do so, we apply time-varying copula models proposed by Patton (2006). We are particularly interested in the differences between emerging markets dependence on the US monetary policy, i.e. which country's financial market co-move more or less in response to quantitative easing or quantitative tightening. The results of our study is important as financial risks via contagion became an issue to monitor especially after the subprime crisis of 2008, although this crisis affected the emerging markets relatively less compared to advanced economies. The results of this paper show us that, there exists significant difference between the emerging markets with respect to their dependence to the US monetary policy. The correlation persistence parameters, which control the evolution of time-varying dependence, reveal that especially the emerging countries in the Latin American region are more dependent to both the US monetary policy and the monetary policy uncertainty. In this framework, it is interesting to see that the results acknowledge increasing dependence during the subprime crisis, which decrease after the year 2009, which should be considered as a risk factor for the policy makers that monitor the financial markets of the emerging markets closely.