Impact of U.S. financial crisis on BRICS: an empirical investigation of macroeconomic and financial indicators

Abstract

The paper seeks to measure US financial crisis of 2008 and its impact on BRICS economies. The paper contributes to the literature on inter-temporal and inter-country dynamics of US financial crisis of 2008. It combines continuous and discrete approaches for defining and measuring crisis. It uses India as a control which enables inter-country comparison. This is undertaken by segregating the variables into causal and impacted via Granger causality test. Impacted variables were segregated into two sets namely macro and financial variables. The PCA was applied to produce three indices namely, Composite Crises Index (CCI), Composite Macroeconomic Index (CMI) and Composite Financial Index (CFI). The annual data for the period of 1999-2013 were taken from World Bank, Bloomberg, IMF and OECD. It was found that CCI consists of quasi-money, domestic credit to private sector and gross capital formation. The CMI comprises of industry value added, consumer price inflation and real effective exchange rate whereas CFI consist of FDI inflows, market capitalisation and lending interest rate. The FGLS(1967) which takes into consideration the heteroscedasticity and serial correlation in the residuals found that all the countries were impacted by the crisis. The analysis found CFI to be significant determinant of CCI.

Keywords:

• Global financial crisis
• BRICS
• principal component analysis
• FGLS
• macroeconomic and financial variables

JEL Classification:

• G01
• E6
• C23
• C1
• C4

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Eliasson & Kreuter (2001).

2 as part of larger study

3 Phillips Curve of Inflation is a theory that expresses an inverse relationship between unemployment rate and inflation within an economy. In other words, as the economic activity gathers pace, employment rises or unemployment decreases with more jobs leading to an increase in the inflation with economic growth.

4 The stock market facing suspensions were Moscow Interbank Currency Exchange (MICEX) and dollar denominated RTS index (Russian Trading Stock)

5 Output Gap is the difference between the potential production and current production within an economy.

Additional information

Notes on contributors

Anjala Kalsie

Dr. Anjala Kalsie is associated with Faculty of Management Studies, Delhi University, as Faculty Finance. She has 25 years of teaching experience. She has published fifteen empirical and conceptual papers in ABDC and Scopus indexed journals. The areas of her interests are Financial Economics, Currency, Financial and Banking crises, Foreign Flows and Valuation.

Ashima Arora

Dr. Ashima Arora is a Finance Faculty with Arun Jaitley National Institute of Financial Management (Ministry of Finance, GoI). She has also taught at Delhi University earlier. She has numerous presentation/publications in conferences/journals of national and international repute. Her area of scholarly interest includes International Finance, International Crisis, Financial Modelling, and Corporate Governance.