Geopolitical risks and financial stress in emerging economies
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In: World Economy, Vol. 47, No. 1, 01.2024, p. 217-237.
Research output: Journal contributions › Journal articles › Research › peer-review
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TY - JOUR
T1 - Geopolitical risks and financial stress in emerging economies
AU - NguyenHuu, Tam
AU - Örsal, Deniz Karaman
N1 - Funding Information: We thank the editor for the opportunity to improve and resubmit our manuscript, Prof. Turcu, Prof. Afonso, Prof. Badarau, two anonymous reviewers, participants of the 23rd INFER Annual Conference and Leuphana IVWL workshops for constructive comments and Dr. Park (ADB) for sharing data. Open Access funding enabled and organized by Projekt DEAL. Publisher Copyright: © 2023 The Authors. The World Economy published by John Wiley & Sons Ltd.
PY - 2024/1
Y1 - 2024/1
N2 - We investigate the impacts of geopolitical risks (GPRs) on financial stress (FS) in major emerging economies from 1985 to 2019. Applying a recently developed panel quantile estimation method, we show that GPRs pose serious risks to the stability of the financial condition in emerging economies. Namely, when FS is already equal to or above average, GPRs intensify this instability to a remarkable degree. Nevertheless, GPRs do not ignite the stress when the financial situation is benign. In emerging economies, foreign exchange markets and, to a lesser extent, the banking industry and the debt market suffer more severe consequences of geopolitical tensions than the stock market. In contrast, advanced economies, represented by the Group of Seven (G7), have witnessed detrimental consequences of GPRs on their stock markets, but negligible effects on other parts of their financial systems.
AB - We investigate the impacts of geopolitical risks (GPRs) on financial stress (FS) in major emerging economies from 1985 to 2019. Applying a recently developed panel quantile estimation method, we show that GPRs pose serious risks to the stability of the financial condition in emerging economies. Namely, when FS is already equal to or above average, GPRs intensify this instability to a remarkable degree. Nevertheless, GPRs do not ignite the stress when the financial situation is benign. In emerging economies, foreign exchange markets and, to a lesser extent, the banking industry and the debt market suffer more severe consequences of geopolitical tensions than the stock market. In contrast, advanced economies, represented by the Group of Seven (G7), have witnessed detrimental consequences of GPRs on their stock markets, but negligible effects on other parts of their financial systems.
KW - banking sector
KW - debt market
KW - emerging economies
KW - financial stress
KW - foreign exchange market
KW - geopolitical risks
KW - stock market
KW - Economics
UR - http://www.scopus.com/inward/record.url?scp=85174241864&partnerID=8YFLogxK
UR - https://www.mendeley.com/catalogue/8c80af76-404b-3fd1-8bc7-aa78ec30d6cd/
U2 - 10.1111/twec.13529
DO - 10.1111/twec.13529
M3 - Journal articles
AN - SCOPUS:85174241864
VL - 47
SP - 217
EP - 237
JO - World Economy
JF - World Economy
SN - 0378-5920
IS - 1
ER -