Financial Performance and Macroeconomic Fundamentals in Emerging Market Economies Over the Global Financial Cycle

23 Pages Posted: 28 Oct 2016

See all articles by J. Scott Davis

J. Scott Davis

Federal Reserve Banks - Federal Reserve Bank of Dallas

Andrei Zlate

Federal Reserve Banks - Federal Reserve Bank of Boston

Date Written: 2016-09-01

Abstract

This paper explores the relationship between financial performance and macroeconomic fundamentals in emerging market economies not only in times of crises, but in general during crisis and non-crisis years over the global financial cycle. Using a panel framework with data for 119 emerging market economies at an annual frequency, we examine whether the relationship between performance and fundamentals varies in magnitude and/or switches sign between crisis and non-crisis years. We find that better macroeconomic fundamentals (such as a stronger net foreign asset positions and higher stocks of foreign exchange reserves) are associated with better financial performance not just during crisis episodes, but also during normal times. Quantitatively, the impact of fundamentals on performance is smaller during normal times than during crisis years, but works in the same direction and is statistically significant. The results are consistent with those of recent empirical studies on the link between financial performance and fundamentals during episodes of global financial stress, but generalizes the results to the global financial cycle.

JEL Classification: E5, F3

Suggested Citation

Davis, J. Scott and Zlate, Andrei, Financial Performance and Macroeconomic Fundamentals in Emerging Market Economies Over the Global Financial Cycle (2016-09-01). Globalization and Monetary Policy Institute Working Paper No. 288. Available at SSRN: https://ssrn.com/abstract=2860553 or http://dx.doi.org/10.24149/gwp288

J. Scott Davis (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

Andrei Zlate

Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

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