Hot Money in Bank Credit Flows to Emerging Markets During the Banking Globalization Era

40 Pages Posted: 5 Nov 2014 Last revised: 24 Mar 2017

See all articles by Ana-Maria Fuertes

Ana-Maria Fuertes

Cass Business School, City University of London

Kate Phylaktis

City University London - Sir John Cass Business School

Cheng Yan

Essex Business School

Date Written: November 4, 2014

Abstract

This paper investigates the relative importance of hot money in bank credit and portfolio flows from the US to 18 emerging markets over the period 1988-2012. We deploy state-space models à la Kalman filter to identify the unobserved hot money as the temporary component of each type of flow. The analysis reveals that the importance of hot money relative to the permanent component in bank credit flows has significantly increased during the 2000s relative to the 1990s. This finding is robust to controlling for the influence of push and pull factors in the two unobserved components. The evidence supports indirectly the view that global banks have played an important role in the transmission of the global financial crisis to emerging markets, and endorses the use of regulations to manage international capital flows.

Keywords: International capital flows; Hot money; Crisis transmission; Banking globalisation; Kalman filter

JEL Classification: E44, F20, F34, G1

Suggested Citation

Fuertes, Ana-Maria and Phylaktis, Kate and Yan, Cheng, Hot Money in Bank Credit Flows to Emerging Markets During the Banking Globalization Era (November 4, 2014). Journal of International Money and Finance, Vol. 60, No. 29-52, 2016. Available at SSRN: https://ssrn.com/abstract=2519112 or http://dx.doi.org/10.2139/ssrn.2519112

Ana-Maria Fuertes

Cass Business School, City University of London ( email )

Faculty of Finance
106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 207 477 0186 (Phone)
+44 207 477 8881 (Fax)

HOME PAGE: http://www.city.ac.uk/people/academics/ana-maria-fuertes

Kate Phylaktis (Contact Author)

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 20 70408735 (Phone)
+44 20 70408881 (Fax)

HOME PAGE: http://www.cass.city.ac.uk/faculty/k.phylaktis/

Cheng Yan

Essex Business School ( email )

University of Essex
Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

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