Capital Inflows to Emerging Countries and Their Sensitivity to the Global Financial Cycle

47 Pages Posted: 28 May 2020

Date Written: February 12, 2020

Abstract

We study how the effect of global and domestic factors on capital flows towards emerging economies has changed in the last 25 years. We find that both the global financial crisis and the so-called ‘taper tantrum’ event, when investors perceived the end of the US Federal Reserve’s unconventional monetary policy, triggered changes in the sensitivity of capital inflows to their main drivers. In particular, we provide evidence that during the period between the global financial crisis and the taper tantrum, international investors devoted less attention to domestic factors. Nevertheless, the taper tantrum marked the beginning of a new phase, characterized by increased sensitivity to both global factors and domestic vulnerabilities.

Keywords: international capital movements, uncertainty, global financial cycle, VIX, non-linearities

JEL Classification: F21, F32, F42

Suggested Citation

Buono, Ines and Corneli, Flavia and Di Stefano, Enrica, Capital Inflows to Emerging Countries and Their Sensitivity to the Global Financial Cycle (February 12, 2020). Bank of Italy Temi di Discussione (Working Paper) No. 1262, Available at SSRN: https://ssrn.com/abstract=3612811 or http://dx.doi.org/10.2139/ssrn.3612811

Ines Buono

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Flavia Corneli (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Enrica Di Stefano

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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