Are emerging economies’ credit cycles synchronized? Fresh evidence from time–frequency analysis

Abstract

Purpose

To the best of our knowledge, no study has examined credit cycle synchronizations in the context of emerging economies. Studying the credit cycles synchronization across BRICS (Brazil, Russia, India, China and South Africa) countries is crucial given the magnitude of trade and financial integration among member counties. The enormity of the trade and financial linkages among BRICS countries and growth spillovers from emerging economies to advanced and low-income countries provide the rationale and motivation to study the synchronization of credit cycles across BRICS.

Design/methodology/approach

The study investigates the credit cycles coherence across BRICS economies from 1996Q2 to 2020Q4. The synchronization analysis is done using the noval wavelet approach. The analysis examines not only the coherence but also the extent of credit cycle synchronization that varies across frequencies and over time among different pairs of nations.

Findings

The authors find heterogeneity in the credit cycles' synchronization among the member nations. China and India are very much in sync with the other BRICS countries. China's high-frequency credit cycle mostly leads the other countries' credit cycles before the global financial crisis and shows a mix of lead/lag relationships post-financial crisis. Interestingly, most of the time, India's low-frequency credit cycles lead the member countries' credit cycles, and Brazil's low frequency credit cycle lag behind the other BRICS countries' credit cycles, except for Russia. The results are crucial from the macroprudential policymaker's perspective.

Research limitations/implications

The empirical design is applicable to a similar set of countries and may not directly fit each emerging economy.

Practical implications

The findings will help understand the marked deepening of trade, technology, investment and financial interdependence across the world. BRICS acronym requires no introduction, but such analysis may help understand the interaction at the monetary policy level.

Originality/value

This is the first study that highlights the need to understand the credit variable interactions for BRICS nations.

Citation

Saini, S., Kumar, U. and Ahmad, W. (2024), "Are emerging economies’ credit cycles synchronized? Fresh evidence from time–frequency analysis", International Journal of Emerging Markets, Vol. 19 No. 3, pp. 561-581. https://doi.org/10.1108/IJOEM-12-2021-1927