Volatility, Spillovers, and Crisis Contamination: The New Dynamics of Country Risk Since the 1980s and 90s in the Globalized Market Economy
In an integrated world economy, problems in one major country or region—whether the US, Japan, the EU, or one of the BRICS countries—have international ramifications for both emerging market and developing economies. This chapter will analyze the macro-channels of crisis contamination, including the monetary policy of central banks, the exchange rate relationships between surplus and deficit countries, and role of the US Dollar as reserve currency versus the Yuan or the Euro. The Global Financial Crisis has revealed new dangerous feedback loops between sovereign and private economic actors, which in turn threaten macroeconomic and financial market stability, including an overleveraged private sector, undercapitalized banks, and volatile private capital outflows. This is why Country Risk has become more complex to assess than in the past.
KeywordsSavings and investments Growth drivers Capital inflows/outflows Floating exchange rates Contagions Spillovers Central banks
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