Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153849
Authors: 
Chudik, Alexander
Fratzscher, Marcel
Year of Publication: 
2012
Series/Report no.: 
ECB Working Paper 1416
Abstract: 
The paper analyses the transmission of liquidity shocks and risk shocks to global financial markets. Using a Global VAR methodology, the findings reveal fundamental differences in the transmission strength and pattern between the 2007-08 financial crisis and the 2010-11 sovereign debt crisis. Unlike in the former crisis, emerging market economies have become much more resilient to adverse shocks in 2010-11. Moreover, a flight-to-safety phenomenon across asset classes has become particularly strong during the 2010-11 sovereign debt crisis, with risk shocks driving down bond yields in key advanced economies. The paper relates this evolving transmission pattern to portfolio choice decisions by investors and finds that countries' sovereign rating, quality of institutions and their financial exposure are determinants of cross-country differences in the transmission.
Subjects: 
advanced economies
Capital flows
Emerging market economies
global financial crisis
high dimensional VARs
liquidity
risk
sovereign debt crisis
transmission
JEL: 
E44
F3
C5
Document Type: 
Working Paper

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