| Abstract: |
This paper uses a panel structural vector autoregressive (VAR) model to
investigate the extent to which global financial conditions, i.e., a global
risk-free interest rate and global financial risk, and country spreads
contribute to macroeconomic fluctuations in emerging countries. The main
findings are: (1) Global financial risk shocks explain about 20 percent of
movements both in the country spread and in the aggregate activity in emerging
economies. (2) The contribution of global risk-free interest rate shocks to
macroeconomic fluctuations in emerging economies is negligible. Its role,
which was emphasized in the literature, is taken up by global financial risk
shocks. (3) Country spread shocks explain about 15 percent of the business
cycles in emerging economies. (4) Interdependence between economic activity
and the country spread is a key mechanism through which global financial
shocks are transmitted to emerging economies. |