Abstract

http://ssrn.com/abstract=2456288
 
 

References (33)



 


 



Fed Policy Expectations and Portfolio Flows to Emerging Markets


Robin Koepke


Institute of International Finance; University of Wurzburg

April 24, 2015


Abstract:     
The empirical literature has long established that U.S. interest rates are an important driver of international portfolio flows, with lower rates “pushing” capital to emerging markets. On the basis of this literature, it is often argued that the Federal Reserve’s imminent policy tightening cycle is likely to weigh on portfolio flows to emerging markets in coming years. The analysis presented in this paper offers a different interpretation of the literature, suggesting that it is the surprise element of monetary policy that affects EM portfolio inflows. A shift in market expectations towards easier future U.S. monetary policy leads to greater foreign portfolio inflows and vice versa. Given current market expectations of sustained increases in the federal funds rate in coming years, EM portfolio flows could be boosted by a slower pace of Fed tightening than currently expected or could be reduced by a faster pace of Fed tightening.

Number of Pages in PDF File: 51

Keywords: Capital Flows, Emerging Economies, U.S. Monetary Policy, Market Expectations, Push and Pull, Taper Tantrum

JEL Classification: E43, F32, F41, F42, G11


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Date posted: June 20, 2014 ; Last revised: April 25, 2015

Suggested Citation

Koepke, Robin, Fed Policy Expectations and Portfolio Flows to Emerging Markets (April 24, 2015). Available at SSRN: http://ssrn.com/abstract=2456288 or http://dx.doi.org/10.2139/ssrn.2456288

Contact Information

Robin Koepke (Contact Author)
Institute of International Finance ( email )
1333 H St. NW, Suite 800E
Washington, DC 20005
United States
HOME PAGE: http://www.iif.com/emr/koepke-r.php
University of Wurzburg ( email )
Sanderring 2
Wuerzburg, D-97070
Germany
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