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 -