Determinants of Financial Stress in Emerging Market Economies

Download or read book Determinants of Financial Stress in Emerging Market Economies written by Cyn-Young Park and published by . This book was released on 2018 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: The global financial crisis of 2008/09 illustrates how financial turmoil in advanced economies triggered severe financial stress in emerging markets. Previous studies showed the conditions and linkages through which financial stress is transmitted from advanced to emerging markets. This paper extends the existing literature on the use of financial stress index (FSI) in understanding this transmission. The computed financial stress index for twenty-five emerging markets captures key episodes of financial stress in emerging economies and appears to follow financial stress in advanced economies. Using panel regression, we find that advanced and emerging market FSI (excluding the country) significantly increases domestic emerging market FSI; global and domestic factors are both significant; and common regional factor appears significant for emerging Asia and emerging Europe, implying the vulnerability of both regions to regional financial contagion. (Results for the vector autoregression with blocked exogeneity to be included).