External shocks and financial stress post the global financial crisis - UNCTAD financial conditions indicators and financial vulnerabilities in emerging markets

26 March 2019

The objective of this paper is to measure and track financial stress in these six fragile emerging economies in the aftermath of the global financial crisis of 2008, using UNCTAD financial conditions indicators.

The paper argues that there is a need for better tools to measure financial stress in the context of growing instabilities and complexities in international and domestic financial markets.

It then briefly presents the indicators and compares these with relevant existing indices of financial instability. UNCTAD financial conditions indicators have performed well in signalling and capturing the effects of external shocks. Over and above the latest shock arising from appreciations of the dollar and global trade tensions, the indicators picked up the Fed taper tantrum (2013), commodity price shocks (2014), the renminbi shock (2015), and volatility relating to political uncertainty in the United States and the United Kingdom in 2016, with considerable precision, given substantial data limitations.

The publication proceeds with an overview of the occurrence of financial stress episodes in the six selected economies since the onset of the global financial crisis.

It then further discusses the likelihood of a synchronization of such stress episodes across countries, the role played by external drivers of financial instability and countries' capacity for resilience to exogenous shocks.