Financial Linkages Between the U.S. and Latin Amercia

Financial Linkages Between the U.S. and Latin Amercia

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Motivated by recent bursts of global financial market turbulence, this paper investigates the linkages between the financial markets in the United States and those of the seven largest Latin American economies, focusing on the impact of shocks originating in the U.S. stock, bond, and currency markets. After documenting that cross-country linkages were different in qtranquilq and qturbulentq times within our sample, we find that: (i) for stock markets, recent episodes of market turbulence stood out from preceding ones as they showed an increased sensitivity of Latin American markets to U.S. shocks, reversing a trend of weakening linkages; (ii) currency markets in Latin America exhibited a decrease in cross-market linkages with the U.S. during the last episodes of volatility, consistent with increased exchange rate flexibility in the region; and (iii) the external bond markets in Latin America remained on a trend of weakening linkages with U.S. corporate bonds, while they increased their sensitivity to movements in other emerging market bond markets.Pagan and Soydemir (2000) found evidence of strong linkages between the stock markets of Mexico and the United States; ... Since stock market volatility is commonly associated with periods of financial turmoil, the VIX is often referred as ananbsp;...


Title:Financial Linkages Between the U.S. and Latin Amercia
Author: Srideep Ganguly, Roberto Benelli
Publisher:International Monetary Fund - 2007-11-01
ISBN-13:

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