Country Transparency and the Global Transmission of Financial Shocks

39 Pages Posted: 31 Jul 2013

See all articles by Luis Brandao-Marques

Luis Brandao-Marques

International Monetary Fund - Monetary and Capital Markets Department

Gaston Gelos

International Monetary Fund

Natalia Melgar

Universidad de la Republica

Date Written: July 2013

Abstract

This paper considers the role of country-level opacity (the lack of availability of information) in amplifying shocks emanating from financial centers. We provide a simple model where, in the presence of ambiguity (uncertainty about the probability distribution of returns), prices in emerging markets react more strongly to signals from the developed market, the more opaque the emerging market is. The second contribution is empirical evidence for bond and equity markets in line with this prediction. Increasing the availability of information about public policies, improving accounting standards, and enhancing legal frameworks can help reduce the unpleasant side effects of financial globalization.

Keywords: External shocks, Financial systems, Emerging markets, Stock markets, Bond markets, Transparency, Economic models, transparency, emerging markets, transmission of global financial shocks, bond, stock returns, equity markets, bond spreads, bond returns, financial economics, currency crisis, bonds, financial markets, stock markets, equity market, bond spread, bond markets, bond yields, currency crises, financial systems, financial market, sovereign bond, stock market, financial globalization, stock prices, international capital, financial stability, financial contagion, emerging markets stock, stock options, stock price, international financial markets, crowding out, currency risk, emerging mar

JEL Classification: G12, G15

Suggested Citation

Brandao-Marques, Luis and Gelos, R. Gaston and Melgar, Natalia, Country Transparency and the Global Transmission of Financial Shocks (July 2013). IMF Working Paper No. 13/156. Available at SSRN: https://ssrn.com/abstract=2304020

Luis Brandao-Marques

International Monetary Fund - Monetary and Capital Markets Department ( email )

700 19th Street, N.W.
Washington, DC 20431
United States
2026238308 (Phone)
2025898308 (Fax)

R. Gaston Gelos (Contact Author)

International Monetary Fund ( email )

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

Natalia Melgar

Universidad de la Republica ( email )

Av. 18 de Julio
Montevideo, 1968
Uruguay

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