Interest Rates, Leverage, and Business Cycles in Emerging Economies: The Role of Financial Frictions

Fernández, Andrés; Gulan, Adam

doi:10.1257/mac.20120141

Cited by 73 publications

(79 citation statements)

References 26 publications

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“…The first and closest to our work is the literature that has used dynamic, equilibrium models to account for business cycles in small open and emerging economies. A set of papers in this literature has explored the role of terms of trade variations in driving aggregate fluctuations in EMEs (Mendoza, 1995;Kose, 2002 Chang and Fernández, 2013;and Fernández and Gulan, 2014). We extend this strand of the literature by postulating a link between commodity prices and financial conditions in EMEs and quantifying its relevance when accounting for aggregate fluctuations in these economies within a structural framework.…”

Section: Introductionmentioning

confidence: 99%

Sharing a ride on the commodities roller coaster: Common factors in business cycles of emerging economies

Fernández

González

Rodríguez

2018

Journal of International Economics

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144

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Inter-American Development Bank. This work is licensed under a Creative Commons IGO 3.0 AttributionNonCommercial-NoDerivatives (CC-IGO BY-NC-ND 3.0 IGO) license (http://creativecommons.org/licenses/by-nc-nd/3.0/igo/ legalcode) and may be reproduced with attribution to the IDB and for any non-commercial purpose, as provided below. No derivative work is allowed. Terms of use: Documents inAny dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the UNCITRAL rules. The use of the IDB's name for any purpose other than for attribution, and the use of IDB's logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this CC-IGO license.Following a peer review process, and with previous written consent by the Inter-American Development Bank (IDB), a revised version of this work may also be reproduced in any academic journal, including those indexed by the American Economic Association's EconLit, provided that the IDB is credited and that the author(s) receive no income from the publication. Therefore, the restriction to receive income from such publication shall only extend to the publication's author(s). With regard to such restriction, in case of any inconsistency between the Creative Commons IGO 3.0 Attribution-NonCommercial-NoDerivatives license and these statements, the latter shall prevail.Note that link provided above includes additional terms and conditions of the license.The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of the Inter-American Development Bank, its Board of Directors, or the countries they represent.http://www.iadb.org 2015 Abstract * Fluctuations in commodity prices are an important driver of business cycles in small emerging market economies (EMEs). This paper documents how these fluctuations correlate strongly with the business cycle in EMEs. A commodity sector is then embedded into a multi-country EMEs business cycle model where exogenous fluctuations in commodity prices follow a common dynamic factor structure and coexist with other driving forces. The estimated model assigns to commodity shocks 42 percent of the variance in income, of which a considerable part is linked to the common factor. A further amplification mechanism is a spillover effect from commodity prices to risk premia. JEL classifications: E32, F41, F44

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Section: Introductionmentioning

confidence: 99%

Sharing a ride on the commodities roller coaster: Common factors in business cycles of emerging economies

Fernández

González

Rodríguez

2018

Journal of International Economics

Self Cite

144

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“…However, Chinese steel nature of the cost of borrowing from global financial markets for emerging markets, which can affect macroeconomic outcomes as sovereign risk is built into country interest rate spreads (Neumeyer and Perri, 2005;Uribe and Yue, 2006). As an economy improves, the interest rate on offer falls (Fernández and Gulan, 2015;Fernández et al, 2018). The literature has also shown that the omission of commodity prices for emerging markets leads to the overstatement of interest rate shocks on business cycles (Shousha, 2016).…”

Section: Robustnessmentioning

confidence: 99%

Disentangling Commodity Demand, Commodity Supply, and International Liquidity Shocks on An Emerging Market

Fry-McKibbin

Souza

2020

SSRN Journal

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This paper examines the effects of commodity demand and supply shocks as well as international liquidity shocks on the small open economy of Brazil using an SVAR model. The paper highlights the importance of modeling both types of shocks in the commodity sector. Including only commodity prices overstates the effect of commodity price shocks on the output of Brazil. Commodity demand shocks are much larger than commodity supply shocks in the long run. Including commodity demand and international liquidity also reduces the impact of commodity price shocks on the interest rate made available to Brazil in international capital markets. The interest rate channel is considered a source of business cycles for emerging market economies in the literature. AbstractThis paper examines the effects of commodity demand and supply shocks as well as international liquidity shocks on the small open economy of Brazil using an SVAR model. The paper highlights the importance of modeling both types of shocks in the commodity sector. Including only commodity prices overstates the effect of commodity price shocks on the output of Brazil. Commodity demand shocks are much larger than commodity supply shocks in the long run. Including commodity demand and international liquidity also reduces the impact of commodity price shocks on the interest rate made available to Brazil in international capital markets. The interest rate channel is considered a source of business cycles for emerging market economies in the literature.

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“…A recent paper by Gozzi et al (2015) documents key characteristics of corporate bonds markets in EMEs. 13 The academic literature that we use is: Neumeyer and Perri (2005), Uribe and Yue (2006), Aguiar and Gopinath (2007), Fernández and Gulan (2015), and Fernández et al, 2015a. The multilateral organizations and rating agencies that we look at are i) the IMF; ii) MSCI; and iii) JPMorgan.…”

Section: Sample Of Countries and Datamentioning

confidence: 99%

“…On the effects of global factors on EMEs' sovereign spreads, Arora and Cerisola (2001), González-Rozada and Levy-Yeyati (2008), and Ciarlone et al (2009) show that EMEs' sovereign spreads depend negatively on global financial conditions, such as U.S. interest rates, U.S. high-yield corporate spreads, and the volatility of U.S. stock prices, respectively. for the decisions of private agents (see, most recently, Fernández and Gulan, 2015). 6 Our work contributes to this literature by providing empirical evidence of the hypotheses derived from these models regarding the links between corporate bond spreads and economic activity.…”

Section: Introductionmentioning

confidence: 96%

On Corporate Borrowing, Credit Spreadsand Economic Activity in Emerging Economies: An Empirical Investigation

Caballero

Fernández

2016

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Inter-American Development Bank. This work is licensed under a Creative Commons IGO 3.0 AttributionNonCommercial-NoDerivatives (CC-IGO BY-NC-ND 3.0 IGO) license (http://creativecommons.org/licenses/by-nc-nd/3.0/igo/ legalcode) and may be reproduced with attribution to the IDB and for any non-commercial purpose, as provided below. No derivative work is allowed. Terms of use: Documents inAny dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the UNCITRAL rules. The use of the IDB's name for any purpose other than for attribution, and the use of IDB's logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this CC-IGO license.Following a peer review process, and with previous written consent by the Inter-American Development Bank (IDB), a revised version of this work may also be reproduced in any academic journal, including those indexed by the American Economic Association's EconLit, provided that the IDB is credited and that the author(s) receive no income from the publication. Therefore, the restriction to receive income from such publication shall only extend to the publication's author(s). With regard to such restriction, in case of any inconsistency between the Creative Commons IGO 3.0 Attribution-NonCommercial-NoDerivatives license and these statements, the latter shall prevail.Note that link provided above includes additional terms and conditions of the license. This paper studies the influence of external financial factors on economic activity in emerging economies (EMEs) motivated by a considerable increase in foreign financing by the corporate sector in EMEs since the early 2000s, mainly in the form of bond issuance. A quarterly external financial indicator for several EMEs is built using bond-level data on spreads of corporate bonds issued in foreign capital markets, and its relationship with economic activity is examined. Results show that the indicator has considerable predictive power on future economic activity. Furthermore, an identified adverse shock to the financial indicator generates a large and protracted fall in real output growth, and about a third of its forecast error variance is associated with this shock. These findings are robust to controlling for possible spillovers from sovereign to corporate risk, among other considerations.JEL classifications: E32, E37, F34, F37, G15

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Interest Rates, Leverage, and Business Cycles in Emerging Economies: The Role of Financial Frictions

Cited by 73 publications

References 26 publications

Sharing a ride on the commodities roller coaster: Common factors in business cycles of emerging economies

Sharing a ride on the commodities roller coaster: Common factors in business cycles of emerging economies

Disentangling Commodity Demand, Commodity Supply, and International Liquidity Shocks on An Emerging Market

On Corporate Borrowing, Credit Spreadsand Economic Activity in Emerging Economies: An Empirical Investigation

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