Macroeconomic Imbalances and Financial Stress Among BRICS: Analysis of Frequency-Dependent and Asymmetric Causal Nexuses

Abstract This study investigates the intricate and evolving causal relationship between macroeconomic imbalances and financial stress in BRICS nations. To analyse these dynamics across different time scales, thus enabling timely and policy intervention, we employ an asymmetric, noise-reducing-domain ICEEMDAN-based non-parametric model supplemented by a time-varying vector autoregressive model spanning from 1998 to 2021. Our findings reveal that financial stress and macroeconomic imbalance in BRICS exhibit both frequency-dependent and asymmetric linkages, shedding light on the mechanisms underlying financial contagion and market instability in BRICS nations. Specifically deteriorating financial conditions are linked to heightened macroeconomic instability, whereas periods of low stress correspond to improved macroeconomic condition. The results underscore the need to strengthen the macroeconomic frameworks with inflation serving as a critical nominal anchor and focal point of overarching policy guidelines. Proactive monitoring and responses to accumulation of financial imbalances are essential. The study recommends that policymakers should implement fiscal and monetary measures that prioritize sustainable economic growth while reducing reliance on debt and maintaining current account balance to mitigate financial vulnerabilities.