Global financial conditions and asset markets: Evidence from fragile emerging economies

YILDIRIM Z.

ECONOMIC MODELLING, vol.57, pp.208-220, 2016 (SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 57
  • Publication Date: 2016
  • Doi Number: 10.1016/j.econmod.2016.04.018
  • Journal Name: ECONOMIC MODELLING
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus
  • Page Numbers: pp.208-220
  • Keywords: Global risk aversion, US monetary policy, Asset price, Exchange rate, SVAR, Block exogeneity, MONETARY-POLICY, MACROECONOMIC FLUCTUATIONS, EXTERNAL SHOCKS, SOVEREIGN, CHANNELS, RISK
  • Anadolu University Affiliated: Yes

Abstract

This study examines the effects of global financial conditions on the asset markets of five fragile emerging economies-Brazil, India, Indonesia, South Africa, and Turkey-known as the Fragile Five. We estimate a structural vector autoregressive model with a block exogeneity procedure using high-frequency daily data and Bayesian inference. Our primary findings are as follows. (i) Global financial risk shocks have significant effects on government bond yields, equity prices, CDS spreads, and exchange rates in the Fragile Five. (ii) The effects differ considerably across the fragile countries and the assets. (iii) These country differentiations are strongly related to macroeconomic fundamentals. Finally, (iv) global financial risk shocks have a greater immediate effect on local currency government bond and CDS markets than on FX and stock markets. (C) 2016 The Author. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).