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

• Published in: Journal of international financial markets, institutions & money Vol. 72; p. 101320
• Main Author: Keefe, Helena Glebocki
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01.05.2021
• Subjects: Emerging markets; Exchange rates; Global shocks; International transmission; Global shocks; Exchange rates; International transmission; E52; F65; F31; F42; Emerging markets; G15
• ISSN: 1042-4431; 1873-0612
• DOI: 10.1016/j.intfin.2021.101320

•Spikes in global monetary liquidity lead to appreciation in emerging markets.•Global shocks have a smaller effect on EMPI in more open economies.•The transmission of global shocks to EMPI has been amplified in the post-crisis era. There has been a great focus recently on the transmission of shocks from advanced economies to emerging and developing countries. This research considers how shocks in global monetary and credit conditions impact the exchange market pressure index (EMPI) in forty emerging markets and developing economies. It assesses the impact based on the degree of trade openness and capital account openness in these economies using a panel vector autoregression (PVAR) analysis from 1998 to 2016. Countries that are more open in trade and finance are less susceptible to shocks in global monetary liquidity and global credit conditions. Moreover, there is evidence that the response to these shocks changes in the post-2009 era, with the size and strength of the response becoming more significant in both highly open and less open economies. This indicates a greater transmission of these shocks onto exchange market conditions in emerging markets and developing economies in the period after the Global Financial Crisis.