Are EME indicators of vulnerability to financial crises decoupling from global factors?

Working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 16 February 2011

Working Paper No. 410
By Guillermo Felices and Tomasz Wieladek

This paper assesses the extent to which common factors underlie indicators of vulnerability to financial crises in emerging market economies and whether this link is changing over time. We use a Bayesian dynamic common factor model to estimate their common component in a sample of up to 41 countries including both developed as well as emerging economies. This permits us to interpret the component in common to both of them as a global factor. We introduce time-variation into the model to investigate whether indicators are decoupling from global factors over time. While decoupling can be observed in a few cases, the exposure to global factors in most countries tends to fluctuate around the mean. Broadly speaking then, the answer is no.

PDFAre EME indicators of vulnerability to financial crises decoupling from global factors?

 

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