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US Long Term Interest Rates and Capital Flows to Emerging Economies

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  • Eduardo Olaberría

    (OECD)

Abstract

Following Chairman Ben Bernanke’s comments before Congress that the FOMC may ‘take a step down in the pace of asset purchases if economic improvement appears to be sustained’, US 10-year interest rates picked up sharply and gross capital flows to emerging market economies (EMEs) reversed. These events raised concerns that further increases in US interest rates could trigger sharp changes of capital flows that would be followed by financial crises in EMEs. To assess this possibility, this paper studies the association between US long term interest rates and cycles of capital flows to EMEs. It finds that, indeed, cycles in capital flows to EMEs are linked to global conditions, including global risk aversion and long term interest rates in the United States. In particular, higher US long term interest rates are associated with lower levels of gross capital flows to EMEs, and to a higher probability of observing sharp reversals in those flows. Episodes of net capital inflows, on the other hand, are mostly associated with domestic macroeconomic conditions. In particular, economies with relatively low levels of gross outflows, with a high ratio of short-term debt to international reserves or with weak domestic fundamentals are more vulnerable to the risk of a classic sudden stop à la Calvo. This Working Paper relates to the OECD Economic Survey of the United States 2014 (www.oecd.org/eco/surveys/economic-survey-unitedstates. htm) Taux d'intérêt à long-terme des États-Unis et flux de capitaux vers les pays émergents Après les commentaires de Ben Bernanke devant le Congrès que le FOMC pourrait "ralentir dans le rythme des achats d'actifs si l'amélioration économique semble se maintenir», les taux d'intérêt américains à 10 ans ont fortement remontés et les flux de capital brut vers les économies émergentes (EME) se sont inversés. Ces événements ont soulevé des préoccupations que de nouvelles hausses des taux d'intérêt américains pourraient déclencher des changements brusques de flux de capitaux qui seraient suivies par des crises financières dans les pays émergents. Pour évaluer cette possibilité, ce document étudie l'association entre les taux d'intérêt à long terme des États-Unis et les cycles de flux de capitaux vers les pays émergents. Il constate que, en effet, les cycles des flux de capitaux vers des pays émergents sont liés à la conjoncture mondiale, y compris l'aversion au risque global et les taux d'intérêt à long terme aux États-Unis. En particulier, la hausse des taux d'intérêt à long terme américains sont associés à des niveaux plus bas de capital flux bruts de pays émergents, et à une plus grande probabilité d'observer des inversions brutales des flux de capitaux. Cependant, cette association ne vaut que pour les flux de capitaux mesurées en termes bruts. En outre, l’étude ne trouve aucune preuve d'un lien entre les taux d'intérêt à long terme des États-Unis et les flux de capitaux, mesurée en termes nets. Les principaux facteurs associés aux flux nets de capitaux sont les conditions macro-économiques nationales. Ce Document de travail se rapporte à l’Étude économique de l’OCDE des Etats-Unis 2014 (www.oecd.org/fr/eco/etudes/etats-unis.htm).

Suggested Citation

  • Eduardo Olaberría, 2014. "US Long Term Interest Rates and Capital Flows to Emerging Economies," OECD Economics Department Working Papers 1155, OECD Publishing.
    • Handle: RePEc:oec:ecoaaa:1155-en
    DOI: 10.1787/5jz0wh67l733-en
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    1. Gonzalo De Cadenas Santiago & Alicia Garcia-Herrero & Alvaro Ortiz Vidal-Abarca, 2014. "Monetary policy in the North, effects in the South," Working Papers 1429, BBVA Bank, Economic Research Department.

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    More about this item

    Keywords

    asset prices; capital inflows; déséquilibres financiers; exchange rate regimes; flux de capitaux; interest rate; prix d’actifs; régime de taux de change; sudden stops; taux d'intérêt;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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