The Initial Impact of the Crisis on Emerging Market Countries

Olivier Jean Blanchard · Mitali Das · Hamid Faruqee

330 citations0/0 files storedBrookings Papers on Economic Activity

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Global Financial Crisis and Policies Monetary Policy and Economic Impact Economic Theory and Policy

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 the advanced economies. We first develop a simple open economy model, which allows for imperfect capital mobility and potentially contractionary effects of currency depreciation due to foreign debt exposure. We then look at the cross-country evidence. The data suggest a strong role for both trade and financial shocks. Perhaps surprisingly, the data 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.

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References

2004Balance Sheets and Exchange Rate Policy 2010Financial Stability, the Trilemma, and International Reserves 2002External Debt and Growth 2010The Collapse of International Trade during the 2008–09 Crisis: In Search of the Smoking Gun 2010The Cross-Country Incidence of the Global Crisis 2009The Global Financial Crisis: Explaining Cross-Country Differences in the Output Impact 2010The Great Trade Collapse of 2008–09: An Inventory Adjustment?

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2012External adjustment and the global crisis 2010Cross-country causes and consequences of the crisis: An update 2011Cross-country causes and consequences of the 2008 crisis: Early warning 2012International reserves and the global financial crisis 2011Capital Flow Waves: Surges, Stops, Flight, and Retrenchment 2012From the financial crisis to the real economy: Using firm-level data to identify transmission channels 2012Emerging markets research: Trends, issues and future directions

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