Portfolio Inflows and Real Effective Exchange Rates: Does the Sectorization Matter?

33 Pages Posted: 2 Jun 2017

Date Written: May 2017

Abstract

It has been well-established in the literature that portfolio inflows appreciate the real effective exchange rate. However, the literature lacks a systematic empirical analysis of the impact of portfolio inflows by institutional sector or borrower type. This paper fills this gapby exploring the impact of the inflows of portfolio capital into three institutional sectors (government, banks and corporates) on the real effective exchange rate. Using a large sample of 73 countries, it shows that the effect of portfolio inflows on the real effective exchange rate depends on the sector the investment flows in. The findings are robust to different econometric methods, additional variables in the model, and various indicators of real effective exchange rates.

Keywords: Foreign exchange, Portfolio inflows, real effective exchange rate, sector

JEL Classification: F21, F31

Suggested Citation

Ouedraogo, Rasmané, Portfolio Inflows and Real Effective Exchange Rates: Does the Sectorization Matter? (May 2017). IMF Working Paper No. 17/121. Available at SSRN: https://ssrn.com/abstract=2978682

Rasmané Ouedraogo (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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