Emerging Economies in the 2000s: Real Decoupling and Financial Recoupling

46 Pages Posted: 20 Apr 2016

See all articles by Eduardo Levy Levy-Yeyati

Eduardo Levy Levy-Yeyati

Universidad Torcuato Di Tella - School of Business

Tomás Williams

George Washington University - Department of Economics; George Washington University - Elliott School of International Affairs (ESIA)

Date Written: February 1, 2012

Abstract

The paper documents an intriguing development in the emerging world in the 2000s: a decoupling from the business cycle of advanced countries, combined with the strengthening of the co-movements in the main emerging market assets that predates the synchronized sell-off during the crisis. In addition, the paper tests the hypothesis that financial globalization, to the extent that it creates a common, global investor base for emerging markets, could lead to a tighter asset correlation despite the weaker economic ties. While an examination of the impact of alternative financial globalization proxies does not yield conclusive results, a closer look at global emerging market equity and bond funds shows that the latter indeed foster financial recoupling during downturns, reflecting the fact that they trade near their respective benchmarks and respond to withdrawals by liquidating holdings across the board.

Keywords: Debt Markets, Mutual Funds, Emerging Markets, Currencies and Exchange Rates, Economic Theory & Research

Suggested Citation

Levy-Yeyati, Eduardo Levy and Williams, Tomás, Emerging Economies in the 2000s: Real Decoupling and Financial Recoupling (February 1, 2012). World Bank Policy Research Working Paper No. 5961, Available at SSRN: https://ssrn.com/abstract=1998646

Eduardo Levy Levy-Yeyati (Contact Author)

Universidad Torcuato Di Tella - School of Business ( email )

Saenz Valiente 1010
C1428BIJ Buenos Aires
Argentina

Tomás Williams

George Washington University - Department of Economics ( email )

Monroe Hall, Suite 340
2115 G Street, NW
Washington, DC 20052
United States

George Washington University - Elliott School of International Affairs (ESIA) ( email )

2201 G Street, N.W.
Washington, DC 20052
United States