Financial Spillovers to Emerging Markets During the Global Financial Crisis
IMF Working Papers, May 1, 2009
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- Financial Spillovers to Emerging Markets During the Global Financial Crisis
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Bibliographic details
- Authors: Nathaniel Frank, Heiko Hesse
- Published: May 1, 2009
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451872514.001
Summary
- The paper analyzes potential financial linkages between liquidity and bank solvency measures in advanced economies and emerging market (EM) bond and stock markets during the latest crisis.
- It finds that the notion of possible de-coupling in financial markets had been misplaced: interlinkages were strong and showed sharp increases during specific crisis moments.
- EM stock markets reached their peak in the last quarter of 2007.
Methodology
- A multivariate GARCH model is estimated to gauge the extent of co-movements of financial variables across markets.
Key Findings
- Interlinkages between funding stress and equity markets in advanced economies and EM financial indicators were highly correlated.
- These interlinkages experienced sharp increases during specific crisis moments.
- The evidence contradicts the idea of financial market de-coupling between advanced economies and emerging markets during the Global Financial Crisis.
Policy implications / Analytical significance
- Monitoring of funding stress and bank solvency measures in advanced economies is important for understanding spillovers to EM bond and stock markets.
- Co-movement analysis using multivariate volatility models (such as GARCH) can reveal episodes of heightened contagion and help target policy responses during crises.
Keywords and subjects
- Emerging and frontier financial markets, Financial crises, Financial markets, Financial services, Securities markets, Stock markets, Yield curve
- Africa, Asia and Pacific, CDS measure, EM country, EM economy, emerging market, emerging market equity, Emerging Markets, Europe, GARCH, Global, high-yielding EM currency, Liquidity, market, market volatility, Solvency, Stock markets, subprime crisis, WP, Yield curve
Authorship and access
- By Nathaniel Frank, Heiko Hesse
- May 1, 2009
IMF Working Paper: "Financial Spillovers to Emerging Markets During the Global Financial Crisis" — Nathaniel Frank and Heiko Hesse.