Interlinkages between external debt financing, credit cycles and output fluctuations in emerging market economies

This paper examines the role of external debt financing (EDF) in shaping credit cycles and joint implications EDF flows growth for output volatility ten major emerging economies. We find that extreme phases—known as surge stop episodes—in are significantly associated with surges episodes shown by a panel multinominal logit estimation. However, association is asymmetric—EDF more likely to bring about episode compared occurrence due surges. The results suggest vulnerabilities EMEs sharp movement which turn typically synchronized global liquidity conditions. In second part our analysis, using bias-corrected LSDV estimation dynamic panels, we jointly have strong amplifying impact on volatility. Moreover, also face large when occur together. implicate broader welfare loss form fluctuations synchronization between domestic Significant cause concern policymakers who seek insulate their economies from financial shocks.