US-Financial Conditions and Macro-economy of Emerging Markets

Abstract

It is obvious from the history of finance that we are unable to capture the broader horizon of financial conditions with just a few variables and a plausible answer to this issue can be financial innovations. Policymakers, regulators, market participants, and researchers affirm this conjunction and emphasis working on this part for enhancing our level of understanding on this part. Keeping this view in front, this study aims to offer an empirical assessment of the effects of the financial conditions of the United States upon the macro-economy of emerging economies using standard Vector Auto-Regression (VAR) Models. I achieve this objective by utilizing the financial conditions index of Brave and Butter (2011) to access emerging economies. I found that macro-economic variables respond to the financial conditions of the United States however magnitude varies from country to country.