## _wp09133 - References

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### Purpose and research questions
- Empirical assessment of intensity and transmission of financial stress from advanced to emerging economies.
- Three main questions:
  - How severe is current financial stress in advanced and emerging economies compared with past episodes?
  - How strongly and rapidly is financial stress transmitted, and do global factors, country characteristics, or policies influence the transmission?
  - What are the longer-term implications for capital flows to emerging economies?

### Data and measurement — Emerging Markets Financial Stress Index (EM-FSI)
- EM-FSI constructed for 26 countries, roughly spanning from January 1997 to latest available (monthly frequency).
- EM-FSI components (aggregated by variance-equal weighting after standardization):
  - Banking-sector beta (β): CAPM beta computed using year-over-year banking and market returns over a 12-month rolling window; recorded only when banking returns were lower than overall market returns; series takes only positive values exceeding one, zero otherwise.
  - Stock market returns: year-on-year change in the stock index multiplied by minus one.
  - Stock market volatility: time-varying volatility from a GARCH(1,1) using month-over-month real returns modeled with 12 lags.
  - Sovereign debt spreads: bond yield minus 10-year United States Treasury yield using JPMorgan EMBI Global spreads (or five-year CDS when EMBI unavailable).
  - Exchange Market Pressure Index (EMPI): month-over-month percent changes in exchange rate (vis-à-vis an anchor country) and total reserves minus gold, standardized by their means (μ) and standard deviations (σ); accommodates hyperinflation periods (annual inflation > 150 percent) by adjusting means and standard deviations.
- Aggregation formula:
  - EM-FSI = β + Stock market returns + Stock market volatility + Sovereign debt spreads + EMPI
- Episode identification:
  - Country episode of financial stress defined when EM-FSI exceeds 1.5 standard deviations above its mean.

### Key stylized facts and historical comparisons
- EM-FSI captures four systemic episodes since 1997: late 1997 Asian crisis; late 1998 Russia/LTCM/Brazil episode; 2000 dot-com peak; 2002 Argentine default peak.
- Late 2008: EM-FSI reached exceptionally high levels, surpassing peaks seen during the 1997–98 Asian crisis.
- AE-FSI (advanced economies Financial Stress Index) developed for 17 advanced economies since 1981 shows unprecedented breadth and intensity in the current crisis (update to March 2009).
- Historical note: In seven previous episodes, high stress affected at least 50 percent of advanced economies (GDP-weighted); most episodes included the United States; many were associated with severe banking dislocations.

### Comovement and transmission magnitudes
- Common component:
  - Monthly regression with country and month fixed effects yields a common time-varying component {ρt} that explains about 50 percent of overall variation in EM-FSI.
  - Relating {ρt} to AE-FSI and global factors yields R2 = 0.54; AE-FSI explains 41 percent of variation in {ρt}.
- Two-stage Forbes–Chinn approach (monthly):
  - Stage 1 (country-by-country): average transmission coefficient (beta) across countries about 0.7; close to 70 percent of stress in advanced economies is transmitted to emerging economies.
  - Transmission speed: it takes only one to two months for financial stress to reach emerging economies.
  - Cross-country beta variation: ranges from close to zero (Pakistan, Hungary, China) to more than one (Chile, Turkey).
  - In current crisis (from mid-2007 onward), bank lending linkages, notably to western Europe, are more important transmission channels than in prior episodes.
  - Horizontal contagion among emerging economies (EMFSI from others) is also a key determinant, with effects exceeding one on average.
- Stage 2 (explanation of cross-country betas):
  - Financial linkages (bank lending, portfolio investment, direct investment) jointly significant determinants of stress transmission in prior crises.
  - In the current crisis, bank linkages are especially important: e.g., increasing bank liabilities to western Europe from 15 percent to 50 percent of GDP raises the comovement parameter by more than 1.
  - Including regional dummy variables (United States and Canada; western Europe) weakens individual linkage coefficients, suggesting dummies capture regional lending/holding patterns.
  - Trade linkages found less important than financial linkages for transmission in this sample.

### Annual panel evidence and country characteristics
- Annual aggregation: quarterly averages computed, then the quarter with the largest stress selected as the annual index (alternative 12-month averages yield similar significance but lower average β).
- Annual panel regression (EMFSI on AEFSI, EMFSI of others, global factors, lagged country variables):
  - Average comovement parameter β ≈ 0.45 (column 6 referenced).
  - EMFSI from other emerging economies positive and > 1 (horizontal contagion).
  - Country-specific direct effects on stress:
    - Higher current account and fiscal balances reduce subsequent financial stress; a 1 percentage point of GDP higher deficit associated with average stress index increase of about 0.15 percentage point in the subsequent year.
    - Higher foreign reserves dampen stress, but significance weakens when all controls included (p-value 12 percent in one specification).
  - Openness measures:
    - De facto capital account openness (foreign assets + liabilities divided by GDP) associated with higher stress.
    - Trade openness (exports + imports divided by GDP) associated with lower stress.
- Interaction tests:
  - Transmission higher during documented stress periods (1998, 2000, 2002, 2008), but not significantly stronger in the current crisis relative to previous global stress periods.
  - Interaction terms (AEFSI × country vulnerabilities such as current account, fiscal balances, reserves) generally not statistically significant—little evidence that higher external/fiscal balances or reserves materially reduce transmission of stress.

### Case studies and implications for capital flows
- Historical case studies (US banks in early 1980s; Japanese banks in mid-1990s) show past systemic banking stress in advanced economies led to large, protracted reductions in capital flows to emerging economies while banks rebuilt balance sheets.
- Given current stress rooted in systemic banking crises in advanced economies, a similar prolonged decline in access to foreign capital for emerging economies—especially banking-related flows—may be underway.

### Synthesis of main interpretation and policy-relevant findings
- Financial stress in emerging economies has a large common component strongly linked to advanced economies’ stress.
- Transmission is large (about 70 percent on average in monthly estimates; about 0.45 in annual estimates) and rapid (one to two months).
- Bank lending linkages are especially important in the current crisis, with western European bank exposure critical for emerging Europe’s stronger response.
- Country-level buffers (lower current account/fiscal deficits, higher reserves) reduce baseline stress but provide limited protection from transmission during major global financial stress episodes.
- Policy implication (from findings): while prudent fiscal and external positions and reserve buffers help reduce stress in quieter periods, they may not fully insulate economies from rapid, large-scale transmission when advanced-economy stress is systemic and banking-rooted; preparations for reduced access to foreign capital, particularly banking flows, are warranted.

### Main findings on drivers of emerging market stress (section 5)
- The financial stress impulse in advanced economies explains 70 percent of the increase in financial stress in emerging economies during high-stress periods.
- Contagion from other emerging economies has a very limited effect.
- Global factors (falling interest rates and commodity prices) have a small mitigating effect.
- The contribution from higher current account and fiscal balances prior to such high-stress events in advanced economies is less than 10 percent.
- In contrast, during calm times in advanced economies:
  - Improvements in current account and fiscal balances and reserve accumulation explain about 30 percent of the decline in average emerging economy stress.
- Identified country vulnerabilities matter, but their relative impact is small when advanced economies are in stress.

### Case study analysis: Latin American debt crisis (1980s) and Japanese banking crisis (1990s)
- Latin American debt crisis (1980s):
  - Large U.S. and European bank exposures via syndicated loans; by end-1978 such loans accounted for more than twice the capital and reserves of major U.S. banks.
  - Triggered by sharply rising U.S. interest rates and collapsing oil prices (Mexico defaulted in August 1982; over the next few years 16 other Latin American countries rescheduled their debts to U.S. banks).
  - Loans outstanding to the region decreased by more than 20 percent from 1983 to 1989.
  - U.S. banks significantly retrenched from all emerging economies during the second half of the 1980s.
  - Applicability to current crisis limited because the 1980s trigger was default by emerging economy borrowers, whereas the current crisis was triggered by advanced economy lenders’ losses.
- Japanese banking crisis (1990s):
  - Systemic banking crisis in Japan; Japanese banks were big players in emerging economies, especially in Asia.
  - Banking claims on offshore Asia started declining in early 1990s; for east Asia claims continued to rise until 1997 then fell.
  - Claims on east Asia fell by about two-thirds from peak levels.
  - Domestic claims in Japan fell by about one-quarter from peak levels.
  - Japanese withdrawal was not mirrored by other advanced economy banks.
  - Banks initially shifted to higher-margin markets in Asia when funding costs spiked, then reversed as domestic pressures mounted, producing a massive, protracted decline in lending to east Asia only partially reversing after Japan’s recovery in 2002.
  - Highlights importance of common-lender effects and higher recent financial globalization increasing common-lender risks.

### Conclusions and policy implications
- New financial stress index:
  - The paper introduces a new financial stress index for emerging economies and analyzes transmission during past episodes and the current global crisis.
- Main conclusions:
  - Financial stress spreads rapidly to emerging economies with a high pass-through.
  - The unprecedented spike in financial stress in advanced economies in the third quarter of 2008 had a major effect on emerging economies and raised the financial stress index above levels seen during the Asian crisis; stress has since come down from its peaks.
  - Financial links are a key transmission conduit: emerging economies with higher foreign liabilities to advanced economies have been more affected than those less linked.
  - In the most recent period, bank lending ties—particularly from western European banks—have been a major channel of transmission.
- Role of domestic buffers:
  - Emerging economies obtain some protection during calm periods in advanced economies from lower current account and fiscal deficits and reserve accumulation.
  - During widespread financial stress in advanced economies, these calming effects are too small to prevent stress transmission, though such policy buffers can influence transmission to the real economy (for example, by using reserves to buffer effects from a drop in capital inflows) and the duration of crises (not analyzed in this paper).
- Outlook for capital flows:
  - Banking flows to emerging economies are likely to take a severe hit, as evidenced by south Asian experience during the Japanese banking crisis in the 1990s.
  - Since banking globalization has continued and common-lender risks have risen, the effects of the current crisis on capital flows may be long-lasting and a quick return to past international investment patterns should not be expected.

*Source: Excerpt from IMF working paper _wp09133 (Introduction through part of Section IV) as provided.*

### References..............................................................................................................

### _wp09133 - References

### H3: Purpose and research questions
- Empirical assessment of intensity and transmission of financial stress from advanced to emerging economies.
- Three main questions:
  - How severe is current financial stress in advanced and emerging economies compared with past episodes?
  - How strongly and rapidly is financial stress transmitted, and do global factors, country characteristics, or policies influence the transmission?
  - What are the longer-term implications for capital flows to emerging economies?

### H3: Data and measurement — Emerging Markets Financial Stress Index (EM-FSI)
- EM-FSI constructed for 26 countries, roughly spanning from January 1997 to latest available (monthly frequency).
- EM-FSI components (aggregated by variance-equal weighting after standardization):
  - Banking-sector beta (β): CAPM beta computed using year-over-year banking and market returns over a 12-month rolling window; recorded only when banking returns were lower than overall market returns; series takes only positive values exceeding one, zero otherwise.
  - Stock market returns: year-on-year change in the stock index multiplied by minus one.
  - Stock market volatility: time-varying volatility from a GARCH(1,1) using month-over-month real returns modeled with 12 lags.
  - Sovereign debt spreads: bond yield minus 10-year United States Treasury yield using JPMorgan EMBI Global spreads (or five-year CDS when EMBI unavailable).
  - Exchange Market Pressure Index (EMPI): month-over-month percent changes in exchange rate (vis-à-vis an anchor country) and total reserves minus gold, standardized by their means (μ) and standard deviations (σ); accommodates hyperinflation periods (annual inflation > 150 percent) by adjusting means and standard deviations.
- Aggregation formula:
  - EM-FSI = β + Stock market returns + Stock market volatility + Sovereign debt spreads + EMPI
- Episode identification: country episode of financial stress defined when EM-FSI exceeds 1.5 standard deviations above its mean.

### H3: Key stylized facts and historical comparisons
- EM-FSI captures four systemic episodes since 1997: late 1997 Asian crisis; late 1998 Russia/LTCM/Brazil episode; 2000 dot-com peak; 2002 Argentine default peak.
- Late 2008: EM-FSI reached exceptionally high levels, surpassing peaks seen during the 1997–98 Asian crisis.
- AE-FSI (advanced economies Financial Stress Index) developed for 17 advanced economies since 1981 shows unprecedented breadth and intensity in the current crisis (update to March 2009).
- Historical note: In seven previous episodes, high stress affected at least 50 percent of advanced economies (GDP-weighted); most episodes included the United States; many were associated with severe banking dislocations.

### H3: Comovement and transmission magnitudes
- Common component:
  - Monthly regression with country and month fixed effects yields a common time-varying component {ρt} that explains about 50 percent of overall variation in EM-FSI.
  - Relating {ρt} to AE-FSI and global factors yields R2 = 0.54; AE-FSI explains 41 percent of variation in {ρt}.
- Two-stage Forbes–Chinn approach (monthly):
  - Stage 1 (country-by-country): average transmission coefficient (beta) across countries about 0.7; close to 70 percent of stress in advanced economies is transmitted to emerging economies.
  - Transmission speed: it takes only one to two months for financial stress to reach emerging economies.
  - Cross-country beta variation: ranges from close to zero (Pakistan, Hungary, China) to more than one (Chile, Turkey).
  - In current crisis (from mid-2007 onward), bank lending linkages, notably to western Europe, are more important transmission channels than in prior episodes.
  - Horizontal contagion among emerging economies (EMFSI from others) is also a key determinant, with effects exceeding one on average.
- Stage 2 (explanation of cross-country betas):
  - Financial linkages (bank lending, portfolio investment, direct investment) jointly significant determinants of stress transmission in prior crises.
  - In the current crisis, bank linkages are especially important: e.g., increasing bank liabilities to western Europe from 15 percent to 50 percent of GDP raises the comovement parameter by more than 1.
  - Including regional dummy variables (United States and Canada; western Europe) weakens individual linkage coefficients, suggesting dummies capture regional lending/holding patterns.
  - Trade linkages found less important than financial linkages for transmission in this sample.

### H3: Annual panel evidence and country characteristics
- Annual aggregation: quarterly averages computed, then the quarter with the largest stress selected as the annual index (alternative 12-month averages yield similar significance but lower average β).
- Annual panel regression (EMFSI on AEFSI, EMFSI of others, global factors, lagged country variables):
  - Average comovement parameter β ≈ 0.45 (column 6 referenced).
  - EMFSI from other emerging economies positive and > 1 (horizontal contagion).
  - Country-specific direct effects on stress:
    - Higher current account and fiscal balances reduce subsequent financial stress; a 1 percentage point of GDP higher deficit associated with average stress index increase of about 0.15 percentage point in the subsequent year.
    - Higher foreign reserves dampen stress, but significance weakens when all controls included (p-value 12 percent in one specification).
  - Openness measures:
    - De facto capital account openness (foreign assets + liabilities divided by GDP) associated with higher stress.
    - Trade openness (exports + imports divided by GDP) associated with lower stress.
- Interaction tests:
  - Transmission higher during documented stress periods (1998, 2000, 2002, 2008), but not significantly stronger in the current crisis relative to previous global stress periods.
  - Interaction terms (AEFSI × country vulnerabilities such as current account, fiscal balances, reserves) generally not statistically significant—little evidence that higher external/fiscal balances or reserves materially reduce transmission of stress.

### H3: Case studies and implications for capital flows
- Historical case studies (US banks in early 1980s; Japanese banks in mid-1990s) show past systemic banking stress in advanced economies led to large, protracted reductions in capital flows to emerging economies while banks rebuilt balance sheets.
- Given current stress rooted in systemic banking crises in advanced economies, a similar prolonged decline in access to foreign capital for emerging economies—especially banking-related flows—may be underway.

### H3: Synthesis of main interpretation and policy-relevant findings
- Financial stress in emerging economies has a large common component strongly linked to advanced economies’ stress.
- Transmission is large (about 70 percent on average in monthly estimates; about 0.45 in annual estimates) and rapid (one to two months).
- Bank lending linkages are especially important in the current crisis, with western European bank exposure critical for emerging Europe’s stronger response.
- Country-level buffers (lower current account/fiscal deficits, higher reserves) reduce baseline stress but provide limited protection from transmission during major global financial stress episodes.
- Policy implication (from findings): while prudent fiscal and external positions and reserve buffers help reduce stress in quieter periods, they may not fully insulate economies from rapid, large-scale transmission when advanced-economy stress is systemic and banking-rooted; preparations for reduced access to foreign capital, particularly banking flows, are warranted.

*Italic line: Source: Excerpt from IMF working paper _wp09133 (Introduction through part of Section IV) as provided.*

### 5. We find that during high-stress periods, the largest single factor driving stress increases in

### 5. We find that during high-stress periods, the largest single factor driving stress increases in emerging economies is the financial stress impulse in advanced economies

### Main findings on drivers of emerging market stress
- The financial stress impulse in advanced economies explains 70 percent of the increase in financial stress in emerging economies during high-stress periods.
- Contagion from other emerging economies has a very limited effect.
- Global factors (falling interest rates and commodity prices) have a small mitigating effect.
- The contribution from higher current account and fiscal balances prior to such high-stress events in advanced economies is less than 10 percent.
- In contrast, during calm times in advanced economies:
  - Improvements in current account and fiscal balances and reserve accumulation explain about 30 percent of the decline in average emerging economy stress.
- Identified country vulnerabilities matter, but their relative impact is small when advanced economies are in stress.

### Case study analysis: Banking crises and capital flows
- Purpose:
  - Complement econometric analysis (sample period 1997–2008 provides limited coverage of systemic banking crises in advanced economies) with case studies of crises where stressed banks in advanced economies were heavily involved in lending to emerging economies.
- Crises examined:
  - Latin American debt crisis of the 1980s.
  - Japanese banking crisis of the 1990s.

### Latin American debt crisis (1980s)
- Context and exposures:
  - Many large U.S. and European banks were heavily exposed to Latin America via syndicated loans to sovereign borrowers.
  - By the end of 1978, such loans accounted for more than twice the capital and reserves of the major U.S. banks.
- Trigger and transmission:
  - The initial trigger of defaults in emerging economies was a combination of sharply rising U.S. interest rates and collapsing oil prices (Mexico defaulted in August 1982; over the next few years 16 other Latin American countries rescheduled their debts to U.S. banks).
  - Although not the initial trigger, the debt crisis hit large U.S. banks hard and led them to reduce lending to the region.
- Quantitative effects:
  - Loans outstanding to the region decreased by more than 20 percent from 1983 to 1989.
- Additional notes:
  - Lending to the region from other advanced economy banks also fell.
  - U.S. banks significantly retrenched from all emerging economies during the second half of the 1980s.
  - The protracted decline in bank lending is linked to stress in U.S. banks, but applicability to the current crisis is limited because:
    - In the Latin American debt crisis the trigger was default by emerging economy borrowers, whereas the current crisis was triggered by advanced economy lenders’ losses.
    - A systemic banking crisis was avoided in the United States in the 1980s in part due to regulatory forbearance granted to the largest banks.

### Japanese banking crisis (1990s)
- Context and exposures:
  - Japan suffered a systemic banking crisis during the 1990s driven by collapses in stock and commercial real estate markets and rising corporate stress.
  - Japanese banks were big players in emerging economies, especially in Asia.
- Timing and regional patterns:
  - Banking claims on offshore Asia (Hong Kong SAR and Singapore) started declining in the early 1990s, with decline accelerating after 1994.
  - For east Asia (where Japanese banks were particularly exposed to Thailand and Indonesia), claims continued to rise until 1997 when the Asian crisis erupted.
  - During the next two years, as the Japanese economy deteriorated and its banking system came under pressure, Japanese banks cut back exposure to east Asia; claims remain significantly below the peak of a decade earlier.
- Quantitative effects:
  - Claims on east Asia fell by about two-thirds from peak levels.
  - Domestic claims in Japan fell by about one-quarter from peak levels.
- Comparative retrenchment:
  - The Japanese withdrawal was not part of a general pullout from east Asia; claims from other advanced economy banks did not show the same pattern.
- Behavioral dynamics:
  - Japanese banks initially pulled out of low-margin wholesale markets in the United States and offshore Asia when their cost of funding spiked (the London interbank offered rate spread shot up) and they faced pressure to improve capital ratios.
  - They shifted to higher-margin markets in Asia, but the Asian crisis, a weakening domestic economy, and pressure to increase capital ratios led to a reversal and a massive, protracted decline in lending to east Asia, only partially reversing after Japan’s economic recovery in 2002.
- Implications:
  - The drawn-out impact highlights the importance of common-lender effects, which have grown larger in recent years.
  - Examples of related findings:
    - For emerging Europe, interbank market conditions in western Europe have impacted bank lending in central and eastern Europe.
    - For U.S. banks, foreign offices have less access to parent banks’ balance sheets in times of tighter liquidity conditions in the United States.
  - Foreign bank ownership can increase financial fragility, but can also stabilize emerging economies during stress—provided conditions in parent banks’ home countries are calm.

### Conclusions and policy implications
- New financial stress index:
  - The paper introduces a new financial stress index for emerging economies and analyzes transmission during past episodes and the current global crisis.
- Main conclusions:
  - Financial stress spreads rapidly to emerging economies with a high pass-through.
  - The unprecedented spike in financial stress in advanced economies in the third quarter of 2008 had a major effect on emerging economies and raised the financial stress index above levels seen during the Asian crisis; stress has since come down from its peaks.
  - Financial links are a key transmission conduit: emerging economies with higher foreign liabilities to advanced economies have been more affected than those less linked.
  - In the most recent period, bank lending ties—particularly from western European banks—have been a major channel of transmission.
- Role of domestic buffers:
  - Emerging economies obtain some protection during calm periods in advanced economies from lower current account and fiscal deficits and reserve accumulation.
  - During widespread financial stress in advanced economies, these calming effects are too small to prevent stress transmission, though such policy buffers can influence transmission to the real economy (for example, by using reserves to buffer effects from a drop in capital inflows) and the duration of crises (not analyzed in this paper).
- Outlook for capital flows:
  - Banking flows to emerging economies are likely to take a severe hit, as evidenced by south Asian experience during the Japanese banking crisis in the 1990s.
  - Since banking globalization has continued and common-lender risks have risen, the effects of the current crisis on capital flows may be long-lasting and a quick return to past international investment patterns should not be expected.

*Source: _wp09133 - 5. We find that during high-stress periods, the largest single factor driving stress increases in (PDF chapter/section).*

### REFERENCES

### REFERENCES

### Major cited works (selection from list)
- Abeysinghe, and Kristin Forbes, 2005, “Trade Linkages and Output-Multiplier Effects: A Structural VAR Approach with a Focus on Asia,” Review of International Economics, Vol. 13, No. 2, pp. 356–75.
- Aydin, Burcu, 2008, “Banking Structure and Credit Growth in Central and Eastern European Countries,” IMF Working Paper (unpublished; Washington: International Monetary Fund).
- Broner, Fernando A., R. Gaston Gelos, and Carmen M. Reinhart, 2006, “When in Peril, Retrench: Testing the Portfolio Channel of Contagion,” Journal of International Economics, Vol. 69, pp. 203–30.
- Calvo, Guillermo A., 2005, Emerging Capital Markets in Turmoil: Bad Luck or Bad Policy? (Cambridge, MA: The MIT Press).
- Calvo, Guillermo A., Alejandro Izquierdo, and Luis F. Mejía, 2008, “Systemic Sudden Stops: The Relevance of Balance-Sheet Effect and Financial Integration,” NBER Working Paper 14026.
- Cardarelli, Roberto, Selim Elekdag, and Subir Lall, 2009, “Financial Stress, Downturns, and Recoveries,” forthcoming, IMF Working Paper (Washington: International Monetary Fund).
- Claessens, Stijn, Neeltje Van Horen, Tugba Gurcanlar, and Joaquin Mercado, 2008, “Foreign Bank Presence in Developing Countries 1995–2006: Data and Trends,” (unpublished, Washington: The World Bank), March.
- Demirguc-Kunt, Asli, Enrica Detragiache, and Poonam Gupta, 2006, “Inside The Crisis: An Empirical Analysis of Banking Systems in Distress,” Journal of International Money and Finance, Vol. 25(5), pp. 702–18, August.
- Eichengreen, Barry J. and Michael D. Bordo, 2002, “Crises Now and Then: What Lessons from the Last Era of Financial Globalization,” NBER Working Paper W8716, January.
- Forbes, Kristin, 2001, “Are Trade Linkages Important Determinants of Country Vulnerability to Crises?” Paper prepared for the NBER conference on Currency Crises Prevention, January.
- Ghosh, Atish, 2006, “Capital Account Crises: Lessons for Crisis Prevention,” paper prepared for the High-Level Seminar on Crisis Prevention, Singapore, July 10–11, 2006.
- Kaminsky, Graciela, and Carmen M. Reinhart, 2003, “The Center and The Periphery: The Globalization of Financial Turmoil,” NBER Working Paper 9479, January.
- Laeven, Luc, and Fabian Valencia, 2008, “Systemic Banking Crises: A New Database,” Working Paper (unpublished; Washington: International Monetary Fund).
- Reinhart, Carmen M., and Kenneth S. Rogoff, 2008a, “This Time is Different: A Panoramic View of Eight Centuries of Financial Crises,” NBER Working Paper 13882.
- Rothenberg, Alexander D., and Francis E. Warnock, 2006, “Sudden Flight and True Sudden Stops,” NBER Working Paper W12726, December.

(Full list of references appears in the source document.)

### Data appendix — sample and measurement details
- EM-FSI constructed for 26 countries spanning January 1997 to latest available; econometric study uses data up to March 2009; attached data set includes more recent data.
- 26 countries in EM-FSI sample: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, Slovak Republic, Slovenia, South Africa, Sri Lanka, Thailand, and Turkey.
- Econometric analysis uses 18 countries: Argentina, Brazil, Chile, China, Colombia, Egypt, Hungary, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, South Africa, Thailand, and Turkey.
- Complete set of advanced economies used: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, Netherlands, Norway, Spain, Sweden, Switzerland, United Kingdom, and United States.
- Measurement exclusions:
  - Bank linkages measured excluding Australia, Denmark, and Norway.
  - Portfolio linkages exclude Finland, and also Germany and Switzerland prior to 2001.
  - Direct investment linkages exclude Belgium and Spain.
- The two indices, AE-FSI and EM-FSI, are available for download along with this study.

### Key episodes of widespread financial stress in advanced economies (from Table 1)
- Definition note: Widespread financial stress defined as periods during which at least 50 percent of advanced economies GDP is in high financial stress measured by a stress index exceeding 1 standard deviation above its trend.
- Identified episodes and peak years include: 1982 (U.S. Banking Sector Stress), 1987 (Stock Market Crash), 1990 (Nikkei crash and Scandinavian banking crises), 1992 (ERM crisis), 1998 (LTCM collapse), 2000 (NASDAQ crash), 2002 (WorldCom, Enron, and Arthur Anderson defaults), and 2008 (peak assumed quarter four).

### Selected empirical estimates and statistics (preserved exactly from tables)
- Table 2 — Determinants of common time trend (emerging economy):
  - Financial Stress (adv. econ.): 0.48*** (0.05) and 0.47*** (0.06)
  - Commodity price growth: -0.04*** (0.01)
  - Observations: 133; R2: 0.411 and 0.543
- Table 3 — Comovement in Financial Stress (selected R2 and entries):
  - Example: Mexico (01/97 - 01/09): R2 = 0.830; AE-FSI full sample = 0.836; AE-FSI 1998H2 - 2003H1 = 0.693; AE-FSI 2007H2 onward = 0.542; EM-FSI aggregate = 1.033
  - Source: Authors’ calculations. Robust t-statistics in italics. All regressions include 3-month libor and year-on-year changes in global industrial production and commodity prices.
- Table 4 — Role of linkages as determinants of comovement (past stress July 1998 - June 2003):
  - Bank linkages: 0.013** [0.006]
  - Portfolio linkages: 0.054*** [0.015]
  - Direct investment linkages: 0.040*** [0.007]
  - Trade linkages: 0.022*** [0.007]
  - US and Canada dummy: 0.379*** [0.130]
  - Western Europe dummy: 0.504*** [0.158]
  - Observations: 48; R-squared examples: 0.19, 0.33, 0.32, 0.25, 0.36, 0.52, 0.27
- Table 5 — Emerging Economy Stress: Country-specific Effects (selected estimates):
  - Financial stress (adv econ): 0.40*** (0.06) up to 0.44*** (0.05) across models (1)–(6).
  - Financial stress (other em econ): 1.76*** (0.47) down to 1.26*** (0.41) depending on specification.
  - Libor (3 month): 0.26** (0.09) down to 0.16 (0.10).
  - Global growth: -1.12*** (0.19) to -0.75*** (0.13).
  - Financial openness (t-1): 0.02** (0.01) to 0.03*** (0.01).
  - Trade Openness (t-1): -0.07** (0.03) to -0.04 (0.03).
  - Observations: 190; Countries: 18; R2 overall: 0.15 to 0.29; R2 within: 0.51 to 0.58.
- Table 6 — Interactions with stress periods in advanced economies (selected):
  - Financial stress (adv econ): 0.44*** (0.05) in model (1); interaction Financial stress (adv econ) x stress periods: 0.66*** (0.13) in model (2).
  - Financial stress (other em econ): 1.26*** (0.41) down to 1.06** (0.40) across models.
  - Libor (3 month): 0.16 (0.10) to 0.37*** (0.12).
  - Global growth: -0.75*** (0.13) to -1.04*** (0.15).
  - Observations: 190; Countries: 18; R2 overall: 0.27 to 0.38; R2 within: 0.58 to 0.63.
- Table 7 — Interactions with stress level in advanced economies (selected):
  - Interaction term Financial stress (adv econ) x stress periods: 0.65*** (0.13) to 0.71*** (0.18) across models (1)–(4).
  - Libor (3 month): 0.35** (0.12) to 0.37** (0.13).
  - Global growth: -1.00*** (0.14) to -1.04*** (0.16).
  - Financial openness (t-1): 0.02** (0.01).
  - Observations: 190; Number of countries / R2: overall 0.36–0.38; within 0.63.

### Variable definitions (from Table 8, preserved exactly)
- EM-FSI: Financial stress (emerging economies) — Index (see text) — IMF staff calculations.
- AE-FSI: Financial stress (advanced economies) — Index (see text, and Cardarelli, Elekdag, Lall 2009) — IMF staff calculations.
- Financial stress (aggregate of other emerging economies): Aggregate index excluding country under study and net of effects from AE-FSI and global controls — IMF staff calculations.
- Global controls:
  - LIBOR (three-month): Interest rate (average monthly) — GDS.
  - Global growth: Annual growth rate — WEO.
  - Commodity terms of trade (growth): Annual growth rate — WEO.
  - Industrial production (growth): Annual growth rate — GDS.
  - Commodity prices (growth): Annual growth rate — GDS.
- Country characteristics:
  - Financial openness: Foreign assets plus liabilities divided by GDP — Lane and Milesi-Ferretti (2006).
  - Trade openness: Exports plus imports divided by GDP — WEO.
  - Current account balance: Percent of GDP — BOPS.
  - Fiscal balance: Percent of GDP — WEO.
  - Gross foreign reserves: Percent of GDP — BOPS.
- Financial and trade linkages:
  - Bank linkages: Gross liabilities to advanced regions in percent of emerging economy GDP — BIS, Locational and Consolidated Banking Statistics.
  - Portfolio linkages: Gross liabilities and assets vis-à-vis advanced regions in percent of emerging economy GDP — IMF, Coordinated Portfolio Investment Survey.
  - Direct investment linkages: Gross liabilities to advanced regions in percent of emerging economy GDP — OECD, International Direct Investment Statistics.
  - Trade linkages: Total exports to advanced regions (as reported by advanced economies) in percent of emerging economy GDP — IMF, Direction of Trade Statistics.

### Figures and panels (selected descriptions)
- Figure 1: Sudden Stops of Capital Flows and Effects on the Real Economy — trajectories for Latin America (1970–1990) and Emerging Asia (1990–2008); left scale Net flows excl. Exceptional financing, % GDP; right scale Real output, index 1983=100.
- Figure 2: Financial Stress in Emerging Regions and by Components — PPP weighted averages and component series (stock volatility, stock returns, banking beta, sovereign spreads, EMPI) for Latin America, Emerging Asia, Emerging Europe, Other emerging economies.
- Figure 3: Financial Stress in Advanced Economies — time series and episode markers; notes include DBL, ERM, LIBOR, LTCM; 1/ High stress defined as stress index level of one standard deviation above its trend; 2/ Non-overlapping averages of three quarters before, around, and following peak stress; peak in 2008 assumed quarter four.
- Figure 4: Financial Stress in Emerging and Advanced Economies — GDP-weighted level of index, peaks in 1998:Q4, 2000:Q4, 2002:Q3, 2008:Q4 assumption.
- Figure 5: The Transmission of Stress: Schematic Depiction of Effects — mapping common factors, country-specific factors, financial and trade linkages between emerging and advanced economies.
- Figures 6–13: Financial integration, exposures, vulnerability indicators, comovement parameters, and historical impacts (Latin American debt crisis, Japanese banking crisis) — including series measured in percent of GDP and time spans as labeled.

*Source: IMF staff (content and tables/figures reproduced exactly as presented in the referenced PDF).*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2009/_wp09133.pdf_