Capital Markets, Covid-19 and Policy Measures

55 Pages Posted: 28 May 2024

See all articles by Khalid ElFayoumi

Khalid ElFayoumi

International Monetary Fund

Martina Hengge

International Monetary Fund (IMF)

Multiple version iconThere are 4 versions of this paper

Abstract

The COVID-19 episode triggered a historically large wave of capital reallocation and provided an opportunity to revisit the relevance of domestic policies for capital flows. Using high-frequency country-level data, this paper examines how COVID-19 cases, the stringency of the lockdown, and the fiscal and monetary policy response determined the dynamics of portfolio flows. Despite the sizeable impact of global factors, we find that domestic factors played a key role, particularly for emerging markets and bond flows. Our results indicate that higher domestic COVID-19 cases, tighter lockdown, and expansionary fiscal policy measures had a strong positive effect on portfolio flows. In contrast, we find that interest rate cuts led to a decline in portfolio flows, driven by developed markets. Finally, we show that these policies and pre-COVID-19 macroeconomic conditions contributed to countries' exposure to the global shock.

Keywords: Capital flows, COVID-19, Lockdown stringency, Fiscal policy, Monetary policy

Suggested Citation

ElFayoumi, Khalid and Hengge, Martina, Capital Markets, Covid-19 and Policy Measures. Available at SSRN: https://ssrn.com/abstract=4841862 or http://dx.doi.org/10.2139/ssrn.4841862

Khalid ElFayoumi (Contact Author)

International Monetary Fund ( email )

Washington, DC
United States

Martina Hengge

International Monetary Fund (IMF) ( email )

United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
18
Abstract Views
107
PlumX Metrics