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This paper explores the relationship between financial performance and macroeconomic fundamentals in emerging market economies not only in times of crises, but in general during crisis and non-crisis years over the global financial cycle. Using a panel framework with data for 119 emerging market economies at an annual frequency, we examine whether the relationship between performance and fundamentals varies in magnitude and/or switches sign between crisis and non-crisis years. We find that better macroeconomic fundamentals (such as a stronger net foreign asset positions and higher stocks of foreign exchange reserves) are associated with better financial performance not just during crisis episodes, but also during normal times. Quantitatively, the impact of fundamentals on performance is smaller during normal times than during crisis years, but works in the same direction and is statistically significant. The results are consistent with those of recent empirical studies on the link between financial performance and fundamentals during episodes of global financial stress, but generalizes the results to the global financial cycle.

Financial Performance and Macroeconomic Fundamentals in Emerging Market Economies over the Global Financial Cycle