Argentina: Lessons for the Developing Countries

Financial globalization and financial stress in Latin America: the case of
Argentina, Brazil and Mexico
Gilles Dufrénot1, Davide Furceri2 and Aleksandra Zdzienicka 3

Very preliminary Draft
DO NOT QUOTE WITHOUT PERMISION

Abstract
This paper studies the relationship between financial globalization and financial stress in three Latin
American countries (LAC), namely Argentina, Brazil and Mexico. We use a synthetic index of financial stress recently proposed by the IMF and estimate a new model that helps us saying whether different variables of financial globalization are leading indicators that help predicting the likelihood of a forthcoming higher or lower financial stress. Specifically, we estimate a time-varying transition probability Markov-switching model (TVTPMS) in order to evaluate the probability of observing a future crisis given the information contained in the set of financial variables. Among our main findings are the following. In Mexico, financial globalization variables help predict periods of extreme pressure in the financial markets, while in Argentina the variables of financial globalization are useful in predicting the “turning points” in the FSI. They signal higher levels of stress that do not necessarily correspond to crises. Brazil is in an intermediate situation. Most of the variables predict the highest peaks of the FSI (like Mexico), except short-term debt that signals future upward or downward variations in the financial stress indicator

Keywords : Financial globalization, Markov-switching models, Latin America
JEL: C13, C22, G15

1

Banque de France, CEPII and DEFI, Route des Milles, 13290, Les Milles, France. Tel : [phone],
Fax : + 33 4 42 38 95 85, Email : [e-mail].
2
OECD, 2 rue André Pascal, 75775, Paris, Cedex 16. Tel : [phone], Fax : [phone],
Email : [e-mail].
3
GATE and CEPII, 113 rue de Grenelle, 75007, Paris. Tel :++ 1 53 68 55 00, Fax : 33 1 53

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