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Geopolitical risks and financial stress in emerging economies

Author

Listed:
  • Tam NguyenHuu

    (Leuphana Universitat Luneburg)

  • Deniz Karaman Orsal

    (Hamburg Universitat)

Abstract
We investigate the impacts of geopolitical risks (GPRs) on financial stress (FS) in major emerging economies between 1985 and 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. In contrast, 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) economies, have witnessed detrimental consequences of GPRs on their stock markets but negligible effects on other parts of their financial systems.

Suggested Citation

  • Tam NguyenHuu & Deniz Karaman Orsal, 2022. "Geopolitical risks and financial stress in emerging economies," Working Papers 2022.09, International Network for Economic Research - INFER.
    • Handle: RePEc:inf:wpaper:2022.09
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    References listed on IDEAS

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    More about this item

    Keywords

    geopolitical risks; financial stress; emerging economies; stock market; banking sector; foreign exchange market; debt market;
    All these keywords.

    JEL classification:

    • G - Financial Economics

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