Abstract
With the increasing importance of emerging market economies (EMEs) in the global economy, any shocks emanating from these economies will inevitably impact the global economic landscape. After a decade of remarkable economic growth in the EMEs from 2000-2010, the risks have shifted from advanced economies to EMEs as the United States (US) tapered off quantitative easing. As the risk perception intensified, a permanent loss of confidence in these economies is anticipated. This paper explores the implications of the country risk premia shock in EMEs to domestic and the global economy using the intertemporal G-Cubed Model. The financial and trade channels are highlighted in this paper to explain how the shock can lead to permanent slowdown in economic growth. On the policy sphere, the shock has also important implications in rebalancing growth in both shocked and non-shocked economies. A global coordination is likewise needed to ensure economic and financial stability.
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