The Initial Impact of the Crisis on Emerging Market Countries
47 Pages Posted: 26 Jun 2010 Last revised: 8 Jul 2010
Date Written: January 1, 2010
To understand the diverse impact of the crisis across emerging market countries, we explore the role of two shocks - the collapse in trade and the sharp decline in financial flows - in the transmission of the crisis from advanced economies to emerging market countries. We first develop a simple open economy model, which allows for imperfect capital mobility and potentially contractionary effects of exchange rate depreciation due to foreign debt exposure. We then look at the cross-country evidence. The data suggest a strong role of both trade and financial shocks. Perhaps surprisingly, they give little econometric support for a central role of either reserves or exchange rate regimes. We end by presenting case studies for Latvia, Russia, and Chile.
Keywords: Emerging Markets, Crisis, Growth, Reserves, Case Studies
JEL Classification: E3, E65, F32, F34, F41
Suggested Citation: Suggested Citation