America First? A US-centric View of Global Capital Flows

36 Pages Posted: 14 Feb 2019

See all articles by Peter McQuade

Peter McQuade

European Central Bank (ECB)

Martin Schmitz

European Central Bank (ECB)

Date Written: February 13, 2019

Abstract

Both academic researchers and policymakers posit a unique role for the US in the inter-national financial system. This paper investigates the characteristics and determinants of US cross-border financial flows and examines how these contrast with those of the rest of the world. We analyse the relative importance of US, country-specific, and global variables as determinants of aggregate and bilateral US financial flows and as determinants of country-level cross-border financial flows excluding those directly involving the US. Our results indicate that variation in US variables – notably the VIX and US dollar exchange rate – has a quantitatively important influence on global financial flows, but mostly via US cross-border flows. Global and national risk indicators perform better in explaining “rest of the world” flows. Moreover, we find that the correlation between US and rest of the world flows peaks in periods of elevated uncertainty. We interpret our findings as evidence for the existence of a global financial cycle, only some of which is driven by policies and events in the US.

Keywords: international capital flows, US financial system, VIX, US dollar exchange rate, monetary policy spillovers

JEL Classification: F15, F21, F36, F42, G15

Suggested Citation

McQuade, Peter and Schmitz, Martin, America First? A US-centric View of Global Capital Flows (February 13, 2019). ECB Working Paper No. 2238 (2019); ISBN 978-92-899-3500-5 , Available at SSRN: https://ssrn.com/abstract=3334368

Peter McQuade

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Martin Schmitz (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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