The transmission of global monetary and credit shocks on exchange market pressure in emerging markets and developing economies

Keefe, Helena Glebocki

doi:10.1016/j.intfin.2021.101320

Cited by 10 publications

(9 citation statements)

References 33 publications

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“…Our findings support the findings of related studies (e.g. Bouri et al, 2020;Casarin et al, 2018;Keefe, 2021;Rehman et al, 2022;Wang et al, 2021).…”

Section: Discussionsupporting

confidence: 93%

“…It can be linked to the vulnerability of economies to the presence of contagion. The finding coincides with those of Casarin et al (2018) and Keefe (2021) on the greater transmission of shocks to exchange rates of emerging economies after the global financial crisis. Furthermore, the Russia-India pair shows evidence of intense positive coherence between the 0.5-to 3-year scale, specifically from 2004 to 2011.…”

Section: Bivariate Garch and Conditional Correlationssupporting

confidence: 85%

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The interdependence of foreign exchange vulnerability in emerging markets

Qureshi

Aftab

Hegerty

2022

APJBA

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PurposeThe foreign exchange market plays a crucial role in defining the overall health of an economy. In these times of globalization and (in some ways) deglobalization, these markets are highly vulnerable to external shocks. In this line of research, this study investigates exchange-market vulnerability among the BRICS economies by considering the co-movements among variables and contagion among markets.Design/methodology/approachThis study uses DCC-IGARCH and Wavelet approaches to examine interdependence and contagion among the foreign exchange markets of the BRICS countries. The prior approach gives exposure to correlations over time, while the latter approach is suitable to provide insight regarding correlations over different frequency and time domains.FindingsThese results show evidence of meaningful co-movements in the vulnerability of the BRICS economies' foreign exchange markets during periods of market instability. The authors observe that interdependence significantly increased after 2008 and is prominent in the short run, particularly up to the scale of 1.5 years. In addition, there is evidence of persistent integration across the short and medium run. Furthermore, the findings indicate recurrent patterns of co-movements and the presence of contagion.Originality/valueGiven the high degree of economic integration among the BRICS economies, there is relatively little literature on how each member country's foreign exchange vulnerability can affect others. This research fills this gap, by applying appropriate econometric techniques and using a newly created measure of exchange market vulnerability that is unit consistent—such that it combines observed change in exchange rates with the change that is prevented through central bank intervention in a common unit, rather than by combining percentages with dollar-denominated values. This research provides important implications for investors and policymakers.

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“…Our findings support the findings of related studies (e.g. Bouri et al, 2020;Casarin et al, 2018;Keefe, 2021;Rehman et al, 2022;Wang et al, 2021).…”

Section: Discussionsupporting

confidence: 93%

Section: Bivariate Garch and Conditional Correlationssupporting

confidence: 85%

The interdependence of foreign exchange vulnerability in emerging markets

Qureshi

Aftab

Hegerty

2022

APJBA

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“…A key finding of this research is that not all capital flows are the equivalent: some are contractionary and some are expansionary (Blanchard et al 2015); some can be swiftly reversed while others are more sticky and difficult to withdraw (Chuhan et al 1996) and (Claessens et al 1995). (Keefe 2021) report that international interest rate and credit shocks propagated through capital flows have become more pronounced since the Global Financial Crisis (GFC) in [2008][2009]. Therefore, measuring and understanding the cause, determination and nature of these shocks is of great interest to policymakers and researchers.…”

Section: Introductionmentioning

confidence: 94%

International Capital Flows and Speculation

Hayward

Gregoriou

2021

JRFM

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In response to questions about the relative importance of different types of capital flow for international competitiveness, we develop a structural vector auto-regressive model of the real exchange rate and international capital flows. We reveal that innovations to speculative sentiment cause changes in competitiveness. We report that speculation replaces the effect of equity, bond and most of the interest rate effect. The results show that international speculative sentiment is an important contributor to exchange rate and that monetary and regulatory authorities should find ways of measuring and understanding banking and financial flows.

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“…In turn, credit constraints mitigate bilateral exchange rate volatility by reducing the impact of external shocks on the debtor country (Devereux and Lane 2003 ). Employing the PVAR model on a dataset of 40 selected developed and developing countries over the period of 1998–2016, Keefe ( 2021 ) finds that a liberalized capital account can absorb the impact of shocks from the international money market and mitigates the pressure from global credit conditions on foreign exchange rates. In other words, the more liberalized a country’s capital account is, the less the pressure global shocks would impose on the foreign exchange rates.…”

Section: Theoretical Underpinningsmentioning

confidence: 99%

Openness and Real Exchange Rate Volatility: Evidence from China

Yang

Peng

2023

Open Econ Rev

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In recent years, China has introduced a series of trade and financial liberalization policies and taken a crucial step towards the internationalization of RMB. These new developments bring about one question: how has openness affected the RMB real exchange rate volatility? Our empirical results reveal that in the long term, both trade and financial openness reduce exchange rate volatility; in the short term, the effect of financial openness varies across the three financial sub-accounts. Financial development can magnify (mitigate) the impact of trade openness on volatility in the short (long) term, but its role in affecting the impact of financial openness depends on the financial sub-account involved. Economic policy uncertainty (EPU) weakens the impact of openness on exchange rate volatility. In addition, financial openness absorbs more external shocks than trade openness. Foreign exchange reserves, while offsetting financial crisis shocks, cannot adequately absorb current account balance shocks.

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The transmission of global monetary and credit shocks on exchange market pressure in emerging markets and developing economies

Cited by 10 publications

References 33 publications

The interdependence of foreign exchange vulnerability in emerging markets

The interdependence of foreign exchange vulnerability in emerging markets

International Capital Flows and Speculation

Openness and Real Exchange Rate Volatility: Evidence from China

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