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Emerging market capital flows and U.S. monetary policy
Author(s) -
Clark John,
Converse Nathan,
Coulibaly Brahima,
Kamin Steven B.
Publication year - 2019
Publication title -
international finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.458
H-Index - 39
eISSN - 1468-2362
pISSN - 1367-0271
DOI - 10.1111/infi.12355
Subject(s) - economics , monetary economics , monetary policy , capital flows , net capital rule , capital (architecture) , stimulus (psychology) , private capital , macroeconomics , market economy , liberalization , psychology , archaeology , psychotherapist , history , foreign direct investment
This paper analyzes the drivers of net private capital flows to emerging market economies (EMEs), focusing in particular on the policies of the Federal Reserve. We argue that the role of the Federal Reserve in EME capital flows has been smaller than popularly believed. We first show that the run‐up in capital flows to EMEs predated the loosening of Fed policy, while flows slowed substantially between 2010 and 2015, even as the Fed's quantitative easing program continued to add to monetary stimulus. Both the initial surge in capital flows to EMEs and their subsequent decline are better explained by swings in commodity prices and EME output growth, a linkage which we confirm through panel data regressions on capital flows to 20 major EMEs. The anticipation of the normalization of Federal Reserve policy appears not to have played a predominant role in the decline of capital flows to EME between 2010 and 2015.