The transmission of global financial conditions and shocks across borders seems to have intensified following the implementation of the unconventional monetary policy in advanced economies. This is as a result of increasing global trade and integrated financial markets. The channels by which these shocks are transmitted to emerging market economies are the interest-rate channel, the exchange-rate channel, and changes in asset prices.
The interest-rate channel, and especially the yield curve, has been a key transmission channel of extraordinary monetary accommodation in advanced economies. With the decline in global interest rates to near-zero and the consequent easing of financial conditions, the term premium was compressed, which prompted investors to rebalance their portfolios towards higher-yielding assets in emerging market economies.