Financialized Integration and Exchange Rate Dynamics among Emerging Market Economies

Abstract: From the observation that exchange rate dynamics vary widely across emerging market economies, this paper studies the relationship between these dynamics and a type of financial integration, specifically, an integration that is more impacted by financialization, or a more financialized integration. With financialization and the increasing power of money managers, finance has gained a new face in the international sphere. For bridging markets across the globe through their balance-sheets, money managers’ decisions are key in determining asset prices in these markets and the exchange rates of their countries. The article assumes that the use of an EME’s assets and currency in money managers’ innovative strategies that gained space with financialization can be observed by the country’s type of integration and suggests an indicator to proxy it. The article then compares this indicator to the prevalence of exchange rate features of volatility and subordination to international financial conditions and finds a strong positive correlation between the two. Based on these results, the paper argues that financialization results in different types of financial integration and different exchange-rate features among EMEs.

Keywords: Exchange Rates; Emerging Market Economies

This research was discussed at:

7ème Congrès De l'AssociationFrançaise d'Economie Politique : Vers une désintégration de l’Europe ? AFEP, Rennes, 2017

Second New Developmentalism's Workshop: Theory and Policy for Developing Countries. FGV, São Paulo, 2017

DAAD-Development Network Workshop on “New Concepts of Developmentalism: What Relevance for the Developing World?”, Campinas, 2015