Original Sin Redux

41 Pages Posted: 7 Apr 2021

See all articles by Carol C. Bertaut

Carol C. Bertaut

Board of Governors of the Federal Reserve System

Valentina Bruno

American University - Department of Finance and Real Estate; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Hyun Song Shin

Bank for International Settlements (BIS)

Date Written: April 5, 2021

Abstract

We explore the relationship between portfolio flows and financial conditions by using a unique and comprehensive database of US investor flows into emerging market government bonds. We find that mutual funds display a more procyclical pattern of flows relative to other investor types. Delving into the dynamics of portfolio flows at monthly frequency reveals that dollar appreciation amplifies the sell-off in EM local currency bonds, but not dollar-denominated bonds, possibly reflecting clientele effects of stickier investors toward dollar-denominated bonds. Our findings underscore how borrowing in domestic currency has not insulated emerging markets from fluctuations in global financial conditions.

Keywords: Emerging Markets, US Dollar, Sovereign Debt, Investor types

JEL Classification: F3

Suggested Citation

Bertaut, Carol C. and Bruno, Valentina Giulia and Shin, Hyun Song, Original Sin Redux (April 5, 2021). Available at SSRN: https://ssrn.com/abstract=3820755 or http://dx.doi.org/10.2139/ssrn.3820755

Carol C. Bertaut

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Valentina Giulia Bruno

American University - Department of Finance and Real Estate ( email )

Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States

HOME PAGE: http://www.american.edu/kogod/faculty/bruno.cfm

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Hyun Song Shin (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

HOME PAGE: http://www.bis.org/author/hyun_song_shin.htm

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