Determining underlying macroeconomic fundamentals during emerging market crises: Are conditions as bad as they seem?

Mark Aguiar, Fernando A. Broner

Research output: Contribution to journalArticle

2 Scopus citations

Abstract

Emerging market crises are characterized by large swings in both macroeconomic fundamentals and asset prices. The economic significance of observed movements in macroeconomic variables is obscured by the brief and extreme nature of crises. In this paper we propose to study the macroeconomic consequences of crises by studying the behavior of "effective" fundamentals, constructed by studying the relative movements of stock prices during crises. We find that these effective fundamentals provide a different picture than that implied by observed fundamentals. First, asset prices often reflect expectations of improvement in fundamentals after the initial devaluations; specifically, effective depreciations are positive but not as large as the observed ones. Second, crises vary in their effect on credit market conditions, with investors expecting tightening of credit in some cases (Mexico 1994, Philippines 1997), but loosening of credit in others (Sweden 1992, Korea 1997, Brazil 1999).

Original languageEnglish (US)
Pages (from-to)699-724
Number of pages26
JournalJournal of Monetary Economics
Volume53
Issue number4
DOIs
StatePublished - May 2006
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Keywords

  • Asset returns
  • Credit market conditions
  • Emerging market crises
  • Exchange-rate overshooting
  • Macroeconomic fundamentals
  • Sudden stops

Fingerprint Dive into the research topics of 'Determining underlying macroeconomic fundamentals during emerging market crises: Are conditions as bad as they seem?'. Together they form a unique fingerprint.

  • Cite this