The Dollar and Emerging Market Economies: Financial Vulnerabilities Meet the International Trade System

Shousha, Samer

doi:10.17016/ifdp.2019.1258

Cited by 15 publications

(9 citation statements)

References 22 publications

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“…By focusing on the dollar's exchange rate against AEs only and adding factor-augmented controls, we obtain a sharper identification of dollar shocks that are external to developments in EMDEs. Like Shousha (2022), we also consider potential country-level heterogeneity in the transmission of dollar shocks. As will be clear in Section II.B, our state-dependent LP estimation is more flexible in explicitly accommodating time-variation in policy regimes and balance-sheet exposures.…”

Section: Iia Methodology and Initial Findingsmentioning

confidence: 99%

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The Global Dollar Cycle

Obstfeld¹,

Zhou²

2023

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The U.S. dollar's nominal effective exchange rate closely tracks global financial conditions, which themselves show a cyclical pattern. Over that cycle, world asset prices, leverage, and capital flows move in concert with global growth, especially influencing the fortunes of emerging and developing economies (EMDEs). This paper documents that dollar appreciation shocks predict economic downturns in EMDEs and highlights policies countries could implement to dampen the effects of dollar fluctuations. Dollar appreciation shocks themselves are highly correlated not just with tighter U.S. monetary policies, but also with measures of U.S. domestic and international dollar funding stress that themselves reflect global investors' risk appetite. After the initial market panic and upward dollar spike at the start of the COVID-19 pandemic, the dollar fell as global financial conditions eased; but the higher inflation that followed has induced central banks everywhere to tighten monetary policies more recently. The dollar has strengthened considerably since mid-2021 and a contractionary phase of the global financial cycle is now under way. Owing to increases in public-and business-sector debts during the pandemic, a strong dollar, higher interest rates, and slower economic growth will be challenging for EMDEs.

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Section: Iia Methodology and Initial Findingsmentioning

confidence: 99%

“…Other features of an economy can be important as well. Shousha's (2022) findings suggest that lower dollar invoicing of exports and greater integration into global value chains enhance macro stability. He reports similar results to ours concerning exchange rate flexibility and monetary policy credibility.…”

Section: Iib4 Summarymentioning

confidence: 95%

The Global Dollar Cycle

Obstfeld¹,

Zhou²

2023

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“…Both conditions apply to African countries. Additionally, economies primarily exporting commodities and with weaker global value chain integration are more susceptible to negative global financial shocks, such as an appreciation of the US dollar (Carrera et al., 2023; Shousha, 2019). Okot et al.…”

Section: International Financial Subordination and Developmental Impl...mentioning

confidence: 99%

Local Currency Bond Markets in Africa: Resilience and Subordination

Dafe,

Kaltenbrunner,

Kvangraven

et al. 2023

Development and Change

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This article examines the development and implications of local currency bond markets (LCBMs) in African countries in the context of international financial subordination (IFS). Despite the promotion of LCBMs as a solution to debt vulnerability, there is a dearth of research that offers a systematic empirical examination of their actual benefits along with conceptual explanations as to when and why such benefits may or may not materialize. This is especially true for countries at the bottom of the global economic hierarchy. To explore how the subordination in global production and financial systems shapes LCBM development, the article offers an empirical analysis of selected African countries that combines interviews with policy makers, officials and experts with statistical data. The findings suggest that while LCBMs offer some benefits, such as mitigating risks associated with foreign currency debt, their potential is limited by the structural processes created by IFS, such as their dependence on the global financial cycle, the relatively higher costs of this debt and the sustained constraint on macroeconomic policy making. However, there are also domestic factors which shape how these structural constraints are mediated in the context of LCBM development — in particular, historically developed financial structures of developing countries, the political economy of the state and the structure of production. This study thus contributes to the debate about the developmental benefits of domestic debt market development and the emerging research agenda on IFS.

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“…Empirically, Ahmed et al (2015) find that a country with the highest GVC participation lowers the elasticity of manufacturing exports to REER by 30%. Thus, GVC participation is an important determinant of exports (Arbatli & Hong, 2016;Shousha, 2019). Furthermore, based on a case study in Singapore, Arbatli and Hong (2016) find that GVCs and export complexity are critical determinants of export elasticities.…”

Section: Conceptual Framework and Related Literaturementioning

confidence: 99%

Global Value Chains and Exchange Rate Disconnect*

Jangam

Venkatesh

2022

J of App Econs and Policy

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This study examines the effect of global value chains (GVCs) on the association between gross exports and the exchange rate. To do so, we quantify the composition of the GVCs using output-related measures for sixty-one countries from 2007 to 2020. This approach is better than the existing measures in capturing all the linkages of GVCs. Second, we analyse the importance of GVCs on the link between gross exports and the exchange rate using an econometric techniquethe generalised method of moments. Our results show that GVC participation disconnects the exchange rate elasticity of exports. The empirical findings are robust and consistent across the sectors and income groups. Therefore, it is vital for policy-makers to consider the implications of GVCs while devising any policy related to exports. Keywords: gobal value chains, exports, generalised method of moments, exchange rate.*We would like to thank the Editor and the anonymous Reviewers for their insightful remarks and recommendations on the earlier version of the manuscript.

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The Dollar and Emerging Market Economies: Financial Vulnerabilities Meet the International Trade System

Cited by 15 publications

References 22 publications

The Global Dollar Cycle

The Global Dollar Cycle

Local Currency Bond Markets in Africa: Resilience and Subordination

Global Value Chains and Exchange Rate Disconnect*

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