Emerging markets: informality and global financial shocks

Work with Jaroslav Horvath on why emerging economies’ business cycles look different: a large informal sector that absorbs labor-market adjustment, and global financial risk that arrives through equity markets and capital flows rather than sovereign spreads.

• Global Financial Risk, Equity Returns and Economic Activity in Emerging Countries
  Jaroslav Horvath, Guanyi Yang · Oxford Bulletin of Economics and Statistics, 2024Global financial risk shocks reach emerging economies mainly through equity markets, not sovereign spreads: when the response of equity returns to the VIX is shut down, the share of output variance explained by global financial risk falls from about 10 percent to 2 percent, while shutting down the spread response changes almost nothing.
• Unemployment Dynamics and Informality in Small Open Economies
  Jaroslav Horvath, Guanyi Yang · European Economic Review, 2022Emerging market economies have less volatile and less countercyclical unemployment than small open advanced economies, despite larger output swings, and a two-sector search model shows that a bigger informal sector explains much of the difference: informal jobs absorb adjustment that would otherwise run through unemployment.