The Initial Impact of the Crisis on Emerging Market Countries

47 Pages Posted: 26 Jun 2010 Last revised: 8 Jul 2010

See all articles by Olivier J. Blanchard

Olivier J. Blanchard

National Bureau of Economic Research (NBER); Peter G. Peterson Institute for International Economics

Mitali Das

International Monetary Fund (IMF)

Hamid Faruqee

International Monetary Fund (IMF) - Research Department

Date Written: January 1, 2010

Abstract

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

Blanchard, Olivier J. and Das, Mitali and Faruqee, Hamid, The Initial Impact of the Crisis on Emerging Market Countries (January 1, 2010). Brookings Papers on Economic Activity, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1629865

Olivier J. Blanchard (Contact Author)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Peter G. Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

Mitali Das

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Hamid Faruqee

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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