External factors in emerging market recoveries: An empirical investigation (original) (raw)
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2015
We estimate conditional duration models to analyse recovery pro-cesses in emerging market economies. Our reduced form speci¯cation is parsimonious, as we focus on the e®ect of growth in the US, EU, and Japan on the prospects for recovery in emerging market economies experiencing recessions. In order to assess the robustness and forecast-ing capability of our results, we performed out-of-sample predictions using recently available data pertaining to the economies hit by the Asian crisis. The model successfully predicts the bouncing back of most emerging market economies hit by the Asian crisis, and con¯rms the importance of external factors in recovery processes.
A note on forecasting aggregate recovery rates with macroeconomic variables
We provide an ex-ante forecasting model for aggregate recovery rates. Summarizing the literature on recovery rates, there is a variety of factors considered to have influence on recovery rates of loans and bonds. In empirical works there has been strong evidence that recoveries in recessions are much lower than during phases of economic expansion. Following Altman et al. we include the business cycle and macroeconomic variables in order to forecast aggregate recovery rates of the next year. As main input the model uses the CBOE market volatility index that provides very good results in ex ante forecasts in the US bond market.
The Resilience of Emerging Economies during the Great Recession: Lessons learnt from recent data
This chapter focuses on the decoupling hypothesis between emerging countries and the advanced world. On the basis of quarterly seasonally adjusted data over the period 1995q1-2014q1 we present some evidence in favor of a decreasing vulnerability of emerging market economies to global economic and financial development, particularly convincing for Asian countries. Results confirm a common finding in the related literature: The acute phase of the financial crisis triggered by the US mortgage crisis corresponds to a period of substantial increase in business cycle synchronization, arguably determined by the synchronized trade collapse and foreign credit retrenchment, although in the aftermath of the global financial crisis, all the different groups of emerging economies started to decouple again from the United States, and also relative to the Eurozone and to Japan. Therefore, extending the time span to recent data allows us to envisage the recoupling phase with respect to the United States' business cycle as a temporary halt over a long-run decoupling initiated a decade ago.
The Resilience of Emerging Economies During the Great Recession
Advances in Finance, Accounting, and Economics
This chapter focuses on the decoupling hypothesis between emerging countries and the advanced world. On the basis of quarterly seasonally adjusted data over the period 1995q1–2014q1 we present some evidence in favor of a decreasing vulnerability of emerging market economies to global economic and financial development, particularly convincing for Asian countries. Results confirm a common finding in the related literature: The acute phase of the financial crisis triggered by the US mortgage crisis corresponds to a period of substantial increase in business cycle synchronization, arguably determined by the synchronized trade collapse and foreign credit retrenchment, although in the aftermath of the global financial crisis, all the different groups of emerging economies started to decouple again from the United States, and also relative to the Eurozone and to Japan. Therefore, extending the time span to recent data allows us to envisage the recoupling phase with respect to the United S...
International Evidence on Recovery from Recessions
Contemporary Economic Policy, 2013
This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. Although negative shocks have persistent effects on output on average, this paper shows that macroeconomic policies and the structure of the economy can influence the speed of recovery and mitigate the persistence of the shock. Indeed, monetary and fiscal stimulus and foreign aid can spur a rebound, with impacts that are asymmetrically stronger than in nonrecovery years. Real depreciation and the exchange rate regime also have asymmetric growth effects in a recovery year relative to other years of expansion. Recoveries are more sluggish in open economies, partly because fiscal policy is less effective than in closed economies.
Recessions and Financial Disruptions in Emerging Marketes: A Bird's Eye View
2010
This paper provides an overview of the implications of recession and financial disruption episodes in emerging markets. We report three major findings. First, compared to advanced countries, recessions and financial disruptions in emerging markets are often more costly. Second, recessions associated with financial disruption episodes, such as credit crunches, equity price busts and financial crises, tend to be deeper than
Recessions and Financial Disruptions in Emerging Markets: A Bird's Eye View
SSRN Electronic Journal, 2000
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The Universal Shape of Economic Recession and Recovery after a Shock
SSRN Electronic Journal, 2000
We show that a simple and intuitive three-parameter equation fits remarkably well the evolution of the gross domestic product (GDP) in current and constant dollars of many countries during times of recession and recovery. We then argue that this equation is the response function of the economy to isolated shocks, hence that it can be used to detect large and small shocks, including those which do not lead to a recession; we also discuss its predictive power. Finally, a two-sector toy model of recession and recovery illustrates how the severity and length of recession depends on the dynamics of transfer rate between the growing and failing parts of the economy.
Forecasting the End of the Global Recession: Did We Miss the Early Signs?
SSRN Electronic Journal, 2011
This paper looks at the term-structure literature to identify early signs predicting recessionary patterns in the U.S. and other developed economies. Based on the National Bureau of Economic Research (NBER) and Economic Cycle Research Institute (ECRI) recession dates, we de…ne the probability of recession as a function of the traditional yield spread, plus a forward-looking measure of growth expectations, namely the output gap growth spread. For other countries, we extend the model and make it additionally dependent on the probability of recession in the U.S. Our results indicate that most of the a-posteriori o¢ cial recession dates could have been forecast as early as April 2009, when the …rst green shoots of recovery appeared in the U.S. data. Overall, the term-structure versions we apply allow us to signal recessions earlier and more accurately than traditional term-structure models and most professional forecasters.
Why Do Some Countries Recover More Readily from Financial Crises?
The MIT Press eBooks, 2008
Several emerging market economies around the globe were overtaken in the late nineties by severe financial crises and subsequent recessions stretching into the new millennium. Surprisingly, a handful of them recovered more rapidly than others. What factors contributed to their quick turnaround? This paper argues that pre-crisis macroeconomic fundamentals are a crucial part of the recovery process. In particular, the strength of the pre-crisis export sector plays a significant role in renewing investor confidence and pushing post-crisis recovery. Comparing two crisis-afflicted economies of Argentina in post-2001 and Thailand in post-1997, we find that the pre-crisis difference in export sector strength between Argentina and Thailand provides significant explanation for the post-crisis difference in the interest rate and exchange rate movements between the two countries. Our model simulations suggest that Argentina's recovery path would have been stronger if it had Thailand's export sector potential in its pre-crisis years. By contrast, a strong fiscal status and high saving rate resembling Thai levels would not have helped Argentine recovery to the same extent.