Transmission of monetary policy through capital inflows to emerging markets

Arbeitspapier

In this paper, I examine the effects of advanced economies' conventional monetary policy on gross foreign direct and portfolio investment inflows to emerging economies. I use structural vector autoregressions to analyse and compare the response of each inflow category to world interest rate and emerging economies' monetary and exchange rate shocks. Gross foreign direct inflows respond slowly to shocks while gross portfolio reacts on impact. Furthermore, the reaction of foreign direct investment to the shocks is not as high. These results suggest that monetary and exchange rate policies of emerging economies influence portfolio inflows more than they impact foreign direct investment inflows. These results also imply the existence of fundamental differences in capital flow categories beyond what we know to date. I address the "push" and "pull" debate in categories capital flows by quantitatively comparing the forecast error variance decomposition. I do not find evidence of "push" over "pull" factors in either class of inflows.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Queen's Economics Department Working Paper ; No. 1358

Classification and Topics

• Classification: Wirtschaft ; Monetary Policy ; Current Account Adjustment; Short-term Capital Movements ; Interest Rates: Determination, Term Structure, and Effects ; Central Banks and Their Policies ; International Finance Forecasting and Simulation: Models and Applications
• Subject: Monetary policy ; Capital Flows ; Emerging Markets ; Exchange Rate ; Interest Rates

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Olani, Adugna
• Event: Veröffentlichung
• (who): Queen's University, Department of Economics
• (where): Kingston (Ontario)
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/149084
• Last update: 10.03.2025, 11:42 AM CET