External shocks, cross-border flows and macroeconomic risks in emerging market economies

Goyal, Ashima; Verma, Akhilesh K.; Sengupta, Rajeswari

doi:10.1007/s00181-021-02099-z

Cited by 6 publications

(5 citation statements)

References 71 publications

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“…1 For example, ten major EMEs had a mean IIP growth rate of 4.3 before the GFC (2000-08). Growth was just 1.3 after the GFC (2009-17) (Goyal et al, 2021). 2 Source: https://www.imf.org/exter nal/datam apper/ PPPSH @WEO/ OEMDC/ ADVEC/ WEOWORLD.…”

Section: End Notesmentioning

confidence: 99%

“…Although EMs had weathered the global financial crisis (GFC) well because of a shift from foreign short term debt financing towards risk‐sharing equity, their growth fell in the 2010–20 decade 1 of AE quantitative easing (QE) partly due to repeated surges and stops in foreign portfolio flows. Goyal et al (2021) show how after the GFC, as regulation focused on banks, external debt securities dominated cross border flows. Their contribution to domestic macroeconomic risk rose when global risk crossed a threshold and was also higher for EMs with relatively more such flows.…”

Section: The Chance Of Coordinationmentioning

confidence: 99%

“… 1 1 For example, ten major EMEs had a mean IIP growth rate of 4.3 before the GFC (2000–08). Growth was just 1.3 after the GFC (2009–17) (Goyal et al, 2021). …”

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Global shocks and international policy coordination

Goyal

Pal

2022

Global Policy

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We show as emerging markets (EMs) size crosses a threshold it is in advanced economies (AEs) own interest to reduce negative spillovers to EMs. It follows the potential for international cooperation in macroeconomic and prudential policy increases. But entrenched perceptions and historical advantages are obstacles. These blocks are explored as well as possibilities in macroeconomic policies and in prudential regulation. Export of capital is a major way AEs earn a share in EM income. AE macroeconomic policy and volatile capital outflows from AEs are a source of negative spillovers for EMs, but preventive prudential regulation is not adequate in AEs. More regulation is likely to reduce short‐term returns to capital flows but not long‐term, since with fewer crises both AE and EM income streams would rise. Moreover, there is some evidence excess capital flow volatility has adverse effects on AEs themselves. It follows universal macro‐prudential polices would benefit both country groups.

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Section: End Notesmentioning

confidence: 99%

Section: The Chance Of Coordinationmentioning

confidence: 99%

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Global shocks and international policy coordination

Goyal

Pal

2022

Global Policy

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“…In a panel study of 10 emerging countries, Goyal et al (2021) examined the impact of external shocks and cross-border flows on macroeconomic performance. Applying panel vector autoregressive, the study outcome reveals that volatility in global risk perception affects cross-border flows to emerging market economies more than the effect of the US monetary policy stance.…”

Section: Literature Reviewmentioning

confidence: 99%

External shocks and macroeconomic volatility in Nigeria: does financial development moderate the effect?

Abanikanda,

Dada

2023

PRR

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PurposeMotivated by the negative effect of external shocks on the domestic economy, this study explores the role of financial sector development in absorbing the effect of external shocks on macroeconomic volatility in Nigeria.Design/methodology/approachAutoregressive distributed lag and fully modify ordinary least square are used to examine the moderating effect of financial development in the link between external shocks and macroeconomic volatilities in Nigeria between 1986Q1 and 2019Q4. External shock is proxy using oil price shock, and financial development is proxy by domestic credit to the private sector and market capitalisation. At the same time, macroeconomic volatility is proxy by output and inflation volatilities. Macroeconomic volatilities are generated using generalised autoregressive conditional heteroskedasticity (GARCH 1,1).FindingsThe results indicate that domestic credit to the private sector significantly reduces output and inflation volatilities in Nigeria in the short and long run. However, market capitalisation promotes macroeconomic volatility. More specifically, financial development indicators play different roles in curtaining macroeconomic volatilities. The results also reveal that external shocks stimulate macroeconomic volatility in Nigeria in the short and long run. Nevertheless, the effects of external shocks on macroeconomic volatilities are reduced when the role of financial development is incorporated.Practical implicationsThis study, therefore, concludes that strong financial sector development serves as a significant shock absorber in reducing the adverse effect of external shock on the domestic economy.Originality/valueThis study contributes to the extant studies by introducing a country-specific analysis into the empirical examination of how financial development can moderate the influence of external shock on macroeconomic volatilities.

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“…Researchers have examined how the mix of international capital afects the returns and volatility of the stock markets in emerging nations, and they have made the case that these markets are sensitive to the fow of foreign capital [14]. Others think that emerging nations with signifcant exposure to the debt securities market are more susceptible to macroeconomic risk from negative shocks [15]. Additionally, by contrasting the traits of several forms of international capital in a previous study, some academics contend that foreign portfolio investment is the riskiest form of capital due to the wide range of its fows and stocks [16].…”

Section: Introductionmentioning

confidence: 99%

A Study on How International Portfolio Investment Flows Affect Macrofinancial Risks and Control Channels

Wang

2023

Discrete Dynamics in Nature and Society

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In the current complex global economic background, international capital flows are becoming more frequent. Based on this, this paper takes international portfolio investment as the research object and empirically tests the causal relationship and control channel between international portfolio flows and macrofinancial risk in emerging economies. It selects the panel data of emerging economies from 2001 to 2020, constructs macrofinancial risk indicators by using contingent claim analysis and the entropy-based TOPSIS method, tests the effect of international portfolio flows on macrofinancial risk by using the panel distributed lag regression model, and explores the management effect of foreign exchange reserves and capital controls on the risk effect by using the panel threshold regression model. The results show that long-term international portfolio flows help reduce macrofinancial risk, but short-term capital flows appear to increase macrofinancial risk. In addition, both foreign exchange reserves and capital controls effectively reduce the risk effect of portfolio flows. However, when considering different types of portfolios, we find that foreign exchange reserves do not effectively control the risk effect of equity securities flows, while stricter capital controls do. This paper argues that emerging economies should be more open to international long-term portfolio flows, focus on the monitoring of short-term portfolio capital flows and equity securities flows, and coordinate the use of foreign exchange reserves and capital control instruments to manage the risk effects of portfolio flows. This paper verifies the risk effect of international portfolio investment flows through empirical analysis, tests the effectiveness of foreign exchange reserves and capital controls, and provides a decision-making reference for emerging economies to timely identify, effectively manage, and prevent the risk effect of international capital flows.

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External shocks, cross-border flows and macroeconomic risks in emerging market economies

Cited by 6 publications

References 71 publications

Global shocks and international policy coordination

Global shocks and international policy coordination

External shocks and macroeconomic volatility in Nigeria: does financial development moderate the effect?

A Study on How International Portfolio Investment Flows Affect Macrofinancial Risks and Control Channels

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