Monetary and Capital Markets Consequences of Asset Shortages in Emerging Markets

2012 This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the authors and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the authors and are published to elicit comments and to further debate. We assess econometrically the impact of asset shortages on economic growth, asset bubbles, the probability of a crisis, and the current account for a group of 41 Emerging markets for 1995–2008. The econometric estimations confirm that asset shortages pose a serious danger to EMs in terms of reducing economic growth, raising the probability of a crisis, and leading to asset price bubbles. Moreover, asset shortages can also explain the current account positions of EMs. The findings suggest that the consequences of asset shortages for macroeconomic stability are significant, and must be tackled urgently. We conclude with policy implications