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International Finance Discussion Papers
The International Finance Discussion Papers logo links to the International Finance Discussion Papers home page Capital Flows to Emerging Market Economies: A Brave New World?
Shaghil Ahmed and Andrei Zlate
2013-1081  (June 2013)

Abstract:  We examine the determinants of net private capital inflows to emerging market economies. These inflows are computed from quarterly balance-of-payments data from 2002:Q1 to 2012:Q2. Our main findings are: First, growth and interest rate differentials between EMEs and advanced economies and global risk appetite are statistically and economically important determinants of net private capital inflows. Second, there have been significant changes in the behavior of net inflows from the period before the recent global financial crisis to the post-crisis period, especially for portfolio inflows, partly explained by the greater sensitivity of such flows to interest rate differentials and risk aversion. Third, capital control measures introduced in recent years do appear to have discouraged both total and portfolio inflows. Fourth, in the pre-crisis period, there is some evidence that greater foreign exchange intervention to curb currency appreciation pressures brought more capital inflows down the line, but we cannot identify such an effect in the post-crisis period. Finally, we do not find statistically significant positive effects of unconventional U.S. monetary expansion on total net EME inflows, although there does seem to be a change in composition toward portfolio flows. Even for portfolio flows, U.S. unconventional policy is only one among several important factors.

Full paper (1050 KB PDF)

Keywords
Emerging market economies, capital flows, capital controls, foreign exchange intervention, unconventional U.S. monetary policy

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Last update: June 7, 2013