We examine the determinants of net private capital in ‡ows to emerging market economies. These in ‡ows are computed from quarterly balance-of-payments data from 2002:Q1 to 2012:Q2. Our main …ndings are: First, growth and interest rate di¤erentials between EMEs and advanced economies and global risk appetite are statistically and economically important determinants of net private capital in ‡ows. Second, there have been signi…cant changes in the behavior of net in ‡ows from the period before the recent global …nancial crisis to the post-crisis period, especially for portfolio in ‡ows, partly explained by the greater sensitivity of such ‡ows to interest rate di¤erentials and risk aversion. Third, capital control measures introduced in recent years do appear to have discouraged both total and portfolio in ‡ows. Fourth, in the pre-crisis period, there is some evidence that greater foreign exchange intervention to curb currency appreciation pressures brought more capital in ‡ows down the line, but we cannot identify such an e¤ect in the post-crisis period. Finally, we do not …nd statistically signi…cant positive e¤ects of unconventional U.S. monetary expansion on total net EME in ‡ows, although there does seem to be a change in composition toward portfolio ‡ows. Even for portfolio ‡ows, U.S. unconventional policy is only one among several important factors. JEL classi…cation: F3, E5.
We examine the determinants of net private capital in ‡ows to emerging market economies. These in ‡ows are computed from quarterly balance-of-payments data from 2002:Q1 to 2012:Q2. Our main …ndings are: First, growth and interest rate di¤erentials between EMEs and advanced economies and global risk appetite are statistically and economically important determinants of net private capital in ‡ows. Second, there have been signi…cant changes in the behavior of net in ‡ows from the period before the recent global …nancial crisis to the post-crisis period, especially for portfolio in ‡ows, partly explained by the greater sensitivity of such ‡ows to interest rate di¤erentials and risk aversion. Third, capital control measures introduced in recent years do appear to have discouraged both total and portfolio in ‡ows. Fourth, in the pre-crisis period, there is some evidence that greater foreign exchange intervention to curb currency appreciation pressures brought more capital in ‡ows down the line, but we cannot identify such an e¤ect in the post-crisis period. Finally, we do not …nd statistically signi…cant positive e¤ects of unconventional U.S. monetary expansion on total net EME in ‡ows, although there does seem to be a change in composition toward portfolio ‡ows. Even for portfolio ‡ows, U.S. unconventional policy is only one among several important factors.JEL classi…cation: F3, E5.
We assess the importance of economic fundamentals in the transmission of international shocks to financial markets in various emerging market economies (EMEs). Our analysis covers the socalled taper-tantrum episode of 2013 and six earlier episodes of severe EME-wide financial stress since the mid-1990s. Crosscountry regressions lead us to the following results: (1) EMEs with relatively better economic fundamentals suffered less deterioration in financial markets during the 2013 taper-tantrum episode. (2) Differentiation among EMEs set in quite early and persisted throughout this episode. (3) Controlling for economic fundamentals, we also find that, during the taper tantrum, financial conditions deteriorated more in those EMEs that had earlier experienced larger private capital inflows and greater exchange rate appreciation. (4) For earlier episodes, we find little evidence of investor differentiation across EMEs being explained by differences in their relative vulnerabilities during EME crises of the 1990s and early 2000s. (5) That said, differentiation across EMEs based on fundamentals does not appear to be unique to the 2013 episode. Differences in economic fundamentals played a role in explaining the heterogeneous EME financial market responses during the global financial crisis of 2008, and the role of fundamentals appeared to progressively increase through the European crisis in 2011 and subsequently the 2013 taper tantrum.
This paper documents a new type of cross-border bank lending channel. The deepening of the European sovereign debt crisis in 2011 restrained the financial intermediation of European banks in the United States. In this period, some of the U.S. branches of European banks faced a dollar liquidity shock-due to their perceived risk reflecting the sovereign risk of their countries of origin-which in turn affected the branches' lending to U.S. entities. We use a novel dataset to analyze the operations of branches of foreign banks in the United States. Our results show that:(1) The U.S. branches of European banks experienced a run on their deposits, mainly from U.S. money market funds. (2) The branches with curtailed access to large time deposits relied more on funding from their own parent institutions, thus shifting from being net suppliers to being net receivers of dollar funding from their related offices. (3) Since the additional funding received from parent institutions was not enough to offset the decreased access to U.S. funding, such branches reduced their lending to U.S. entities.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.
hi@scite.ai
10624 S. Eastern Ave., Ste. A-614
Henderson, NV 89052, USA
Copyright © 2024 scite LLC. All rights reserved.
Made with 💙 for researchers
Part of the Research Solutions Family.