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Emerging economies in the 2000s:Real decoupling and financial recoupling

  • Eduardo Levy Yeyati
  • Tomas Williams

The paper documents an intriguing development in the emerging world in the 2000s: a decoupling from the business cycle of advanced countries, combined with the strengthening of the co-movements in the main emerging market assets that predates the synchronized sell-off during the crisis. In addition, the paper tests the hypothesis that financial globalization, to the extent that it creates a common, global investor base for emerging markets, could lead to a tighter asset correlation despite the weaker economic ties. While an examination of the impact of alternative financial globalization proxies does not yield conclusive results, a closer look at global emerging market equity and bond funds shows that the latter indeed foster financial recoupling during downturns, reflecting the fact that they trade near their respective benchmarks and respond to withdrawals by liquidating holdings across the board.

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Paper provided by Universidad Torcuato Di Tella in its series Business School Working Papers with number 2011-06_correccion.

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Length: 45 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:udt:wpbsdt:2011-06_correccion
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Web page: http://www.utdt.edu/listado_contenidos.php?id_item_menu=4994

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  17. Eduardo Levy-Yeyati & María Soledad Martínez Pería & Sergio L. Schmukler, 2010. "Depositor Behavior under Macroeconomic Risk: Evidence from Bank Runs in Emerging Economies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(4), pages 585-614, 06.
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