The Transmission of Financial Stress from Advanced to Emerging Economies

Author/Editor:

Stephan Danninger ; Irina Tytell ; Ravi Balakrishnan ; Selim Elekdag

Publication Date:

June 1, 2009

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper studies how financial stress is transmitted from advanced to emerging economies, using a new financial stress index for emerging economies. An episode of financial stress is defined as a period when the financial system's ability to intermediate may be impaired. Previous financial crises in advanced economies passed through strongly and rapidly to emerging economies. In line with this pattern, the unprecedented spike in financial stress in advanced economies elevated financial stress across emerging economies above levels seen during the Asian crisis, but with significant cross-country variation. The extent of pass-through of financial stress is related to the depth of financial linkages between advanced and emerging economies. The paper finds that higher current account and fiscal balances do little to insulate emerging economies from the transmission of financial stress in advanced economies. However, they may help dampen the impact on the real sector of emerging economies and help reestablish financial stability and foreign capital inflows once financial stress subsides.

Series:

Working Paper No. 09/133

Subject:

Notes:

Updated stress index from March 2010

English

Publication Date:

June 1, 2009

ISBN/ISSN:

9781451872804/1018-5941

Stock No:

WPIEA2009133

Format:

Paper

Pages:

52

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