Are EME Indicators of Vulnerability to Financial Crises Decoupling from Global Factors?

37 Pages Posted: 22 Feb 2011

See all articles by Guillermo Felices

Guillermo Felices

Bank of England - Monetary Analysis

Tomasz Wieladek

Bank of England

Date Written: February 21, 2011

Abstract

This paper assesses the extent to which common factors underlie indicators of vulnerability to financial crises in emerging market economies and whether this link is changing over time. We use a Bayesian dynamic common factor model to estimate their common component in a sample of up to 41 countries including both developed as well as emerging economies. This permits us to interpret the component in common to both of them as a global factor. We introduce time-variation into the model to investigate whether indicators are decoupling from global factors over time. While decoupling can be observed in a few cases, the exposure to global factors in most countries tends to fluctuate around the mean. Broadly speaking then, the answer is no.

Keywords: Financial crises, Bayesian dynamic common factor models, decoupling

JEL Classification: C11, C22, F34

Suggested Citation

Felices, Guillermo and Wieladek, Tomasz, Are EME Indicators of Vulnerability to Financial Crises Decoupling from Global Factors? (February 21, 2011). Bank of England Working Paper No. 410, Available at SSRN: https://ssrn.com/abstract=1765863 or http://dx.doi.org/10.2139/ssrn.1765863

Guillermo Felices

Bank of England - Monetary Analysis ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

Tomasz Wieladek (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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