Unité mixte de recherche 7235

International Financial Shocks in Emerging Markets

Michael Brei, Almira Buzaushina

[en]The present paper investigates how an emerging market economy is affected when it suddenly faces a higher risk premium on international capital markets. We study this question empirically for five Latin American economies over the period 1994-2007 within a structural panel vector autoregression and analyze theoretically the transmission mechanism using a dynamic stochastic general equilibrium model (DSGE) of a small open economy. The financial shock is modeled by an unexpected increase in the risk premium of firms’ foreign-currency debt. In response, the adverse shock is amplified by a feedback mechanism between currency depreciation, adverse balance sheet and risk premium effects. The theoretical model is used to study different monetary policy responses. We find that an exchange rate targeting rule that strikes a balance between exchange rate and inflation targeting allows the monetary authority to stabilize inflation and output more effectively than under a pure inflation targeting rule.[/en]

AGENDA

jeudi 19 mai 2022

Lunch

Christophe Blot

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Law, Institutions and Economics in Nanterre (LIEN)

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Law, Institutions and Economics in Nanterre (LIEN)

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Salle G110

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Groupe de travail « Intelligence artificielle »

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Series of Webinars on Economics of Environment, Energy and Transport (SWEEET)

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