Abstract
This paper investigates the financial channels of shocks transmission and crises diffusion in an emerging market economy and highlights the role of debtcreating capital flows. Analysing the determinants of capital flows, author decomposes them into the contribution of global «push» factors and country-specific «pull» factors and estimates their significance on Ukraine’s example. Author argues, that «push» factors play a major role in driving capital flows as long as a business cycle in emerging economy is synchronized with a global business cycle; however, being affected by local or regional crisis, emerging economy is getting decoupled from the global developments and «pull» factors are gaining the dominant role. Author also considers the macroeconomic implications of debtcreating capital flows and external debt in emerging market economies and provides empirical estimates of economic growth effect in Ukraine. JEL: F34, F62, F37.
Highlights
Many emerging market economies and Ukraine’s economy, in particular, are highly sensitive to the impact of global factors
The goal of this study is to investigate the main channels and mechanisms of financial shock spillovers in external sector, fiscal, financial and real sectors of the emerging market economy; to examine the role of debt-related factors in driving external vulnerability and elevating the risks of external crisis; to reveal the significance and contribution of global «push» factors and country- specific «pull» factors in driving capital flows to an emerging market economy; and to estimate the macroeconomic implications of debt-creating capital flows in Ukraine
Vulnerabilities accumulated in a governmental sector, financial, external and real sectors under the impact of external and domestically driven shocks may unfold the chain of events that would drive financial crisis
Summary
Many emerging market economies and Ukraine’s economy, in particular, are highly sensitive to the impact of global factors. Ukraine’s fiscal sector, external and financial sectors were highly vulnerable that magnified the effects of above shocks Under such conditions, starting from 2014, country-specific factors proved to play a major role in driving net inflows of capital flows and global «push» factors impact became insignificant. The goal of this study is to investigate the main channels and mechanisms of financial shock spillovers in external sector, fiscal, financial and real sectors of the emerging market economy; to examine the role of debt-related factors in driving external vulnerability and elevating the risks of external crisis; to reveal the significance and contribution of global «push» factors and country- specific «pull» factors in driving capital flows to an emerging market economy; and to estimate the macroeconomic implications of debt-creating capital flows in Ukraine. It describes the econometric methodology as well.
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