Financial Spillovers to Emerging Markets during the Global Financial Crisis

Abstract

Using data from the recent crisis, the authors analyze financial linkages between market liquidity and bank solvency measures in advanced economies and emerging market bond and stock markets. A multivariate generalized autoregressive conditional heteroskedasticity model is estimated to gauge the extent of co-movements of these financial variables across markets. The findings indicate that the notion of possible decoupling of financial markets had been misplaced. In fact, interlinkages between funding stress and equity markets in advanced economies and emerging market financial indicators were highly correlated, and have seen sharp increases during specific crisis moments.emerging markets, subprime crisis, liquidity, solvency, GARCHemerging markets, subprime crisis, liquidity, solvency, GARCH