U.S. Monetary Expectations and Emerging Market Debt Flows

61 Pages Posted: 9 Dec 2015  

Eric Fischer

University of California, Santa Cruz

Date Written: December 8, 2015

Abstract

This paper examines the effects that changes to U.S. monetary expectations have on debt flows to emerging markets since the Global Financial Crisis. First, daily interest rate expectations measured by federal fund futures and a shadow rate model are used to categorize Federal Reserve announcements as easing (unexpected), tightening (unexpected), easing (expected), and tightening (expected). Second, the announcements categorized by the shadow rate model are used for an event study on daily emerging market debt flows by currency (all currencies, hard currency, local currency, mixed currency), investor (all investors, active investors, passive investors), and region (Asia excluding Japan, Europe Middle East and Africa (EMEA), Latin America, and Global Emerging Markets (Global EM)). The results show that tightening (unexpected) announcements cause emerging market debt outflows, hard currency debt flows respond more to announcements than local currency debt flows, and that passive investors respond more than active investors. Debt flows to Latin America respond more to announcements than debt flows to Asia ex-Japan, EMEA, and Global EM.

Keywords: International Financial Flows, Unconventional Monetary Policy, Debt

JEL Classification: E43, F21, F34, G23

Suggested Citation

Fischer, Eric, U.S. Monetary Expectations and Emerging Market Debt Flows (December 8, 2015). Available at SSRN: https://ssrn.com/abstract=2701151 or http://dx.doi.org/10.2139/ssrn.2701151

Eric Fischer (Contact Author)

University of California, Santa Cruz ( email )

1156 High St
Santa Cruz, CA 95064
United States

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