IDEAS home Printed from https://ideas.repec.org/a/bis/bisqtr/2409d.html
   My bibliography  Save this article

The US dollar and capital flows to EMEs

Author

Listed:
  • Gaston Gelos
  • Pietro Patelli
  • Ilhyock Shim

Abstract

Over the past two decades, emerging market economies (EMEs) have shifted their external financing sources away from foreign currency bank lending to local currency bonds and equities. What does this imply for the drivers of capital flows? We document that the strength of the US dollar against advanced economy currencies is a key driver of local currency bond and equity flows as it affects global investors' risk appetite. Moreover, its importance has risen over the past decade, in part driven by a growing role of mutual funds among foreign investors. These findings may help EMEs achieve more stable external financing.

Suggested Citation

  • Gaston Gelos & Pietro Patelli & Ilhyock Shim, 2024. "The US dollar and capital flows to EMEs," BIS Quarterly Review, Bank for International Settlements, September.
    • Handle: RePEc:bis:bisqtr:2409d
    as

    Download full text from publisher

    File URL: http://www.bis.org/publ/qtrpdf/r_qt2409d.pdf
    Download Restriction: no
    File URL: http://www.bis.org/publ/qtrpdf/r_qt2409d.htm
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Hattori, Masazumi & Shim, Ilhyock & Sugihara, Yoshihiko, 2021. "Cross-stock market spillovers through variance risk premiums and equity flows," Journal of International Money and Finance, Elsevier, vol. 119(C).
    2. Avdjiev, Stefan & Gambacorta, Leonardo & Goldberg, Linda S. & Schiaffi, Stefano, 2020. "The shifting drivers of global liquidity," Journal of International Economics, Elsevier, vol. 125(C).
    3. Robin Koepke, 2019. "What Drives Capital Flows To Emerging Markets? A Survey Of The Empirical Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 33(2), pages 516-540, April.
    4. Maurice Obstfeld & Haonan Zhou, 2022. "The Global Dollar Cycle," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 53(2 (Fall)), pages 361-447.
    5. Brandao-Marques, Luis & Gelos, Gaston & Ichiue, Hibiki & Oura, Hiroko, 2022. "Changes in the global investor base and the stability of portfolio flows to emerging markets," Journal of Banking & Finance, Elsevier, vol. 144(C).
    6. Boris Hofmann & Ilhyock Shim & Hyun Song Shin, 2022. "Risk capacity, portfolio choice and exchange rates," BIS Working Papers 1031, Bank for International Settlements.
    7. Ken Miyajima & Ilhyock Shim, 2014. "Asset managers in emerging market economies," BIS Quarterly Review, Bank for International Settlements, September.
    8. Brandao-Marques, Luis & Gelos, Gaston & Melgar, Natalia, 2018. "Country transparency and the global transmission of financial shocks," Journal of Banking & Finance, Elsevier, vol. 96(C), pages 56-72.
    9. Mert Onen & Hyun Song Shin & Goetz von Peter, 2023. "Overcoming original sin: insights from a new dataset," BIS Working Papers 1075, Bank for International Settlements.
    10. John C. Driscoll & Aart C. Kraay, 1998. "Consistent Covariance Matrix Estimation With Spatially Dependent Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 549-560, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Stefan Avdjiev & Leonardo Gambacorta & Linda S. Goldberg & Stefano Schiaffi, 2025. "The Risk Sensitivity of Global Liquidity Flows: Heterogeneity, Evolution and Drivers," NBER Working Papers 33674, National Bureau of Economic Research, Inc.
    2. Torsten Ehlers & Bryan Hardy & Patrick McGuire, 2025. "International finance through the lens of BIS statistics: the international dimensions of credit," BIS Quarterly Review, Bank for International Settlements, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alessandro Moro & Alessandro Schiavone, 2022. "The role of non-bank financial institutions in the intermediation of capital flows to emerging markets," Temi di discussione (Economic working papers) 1367, Bank of Italy, Economic Research and International Relations Area.
    2. Bank for International Settlements, 2021. "Changing patterns of capital flows," CGFS Papers, Bank for International Settlements, number 66.
    3. Ferriani, Fabrizio, 2021. "From taper tantrum to Covid-19: Portfolio flows to emerging markets in periods of stress," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 74(C).
    4. Etienne Lepers, 2024. "Cross-border real estate investment: a different animal? Comparative evidence from bilateral flow data," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 160(2), pages 481-508, May.
    5. Bianchi, Benedetta & Galstyan, Vahagn & Herzberg, Valerie, 2022. "Global risk and portfolio flows to emerging markets: Evidence from irish-resident investment funds," Journal of International Money and Finance, Elsevier, vol. 123(C).
    6. Cerutti, Eugenio M. & Obstfeld, Maurice & Zhou, Haonan, 2021. "Covered interest parity deviations: Macrofinancial determinants," Journal of International Economics, Elsevier, vol. 130(C).
    7. Ines Buono & Flavia Corneli & Enrica Di Stefano, 2024. "Capital inflows to emerging countries and their sensitivity to the global financial cycle," International Finance, Wiley Blackwell, vol. 27(1), pages 17-34, April.
    8. Annamaria de Crescenzio & Etienne Lepers, 2021. "Extreme capital flow episodes from the Global Financial Crisis to COVID-19: An exploration with monthly data," OECD Working Papers on International Investment 2021/05, OECD Publishing.
    9. Nathan Converse & Eduardo Levy-Yeyati & Tomas Williams, 2023. "How ETFs Amplify the Global Financial Cycle in Emerging Markets," The Review of Financial Studies, Society for Financial Studies, vol. 36(9), pages 3423-3462.
    10. Biswas, Rita & Loungani, Prakash & Liang, Zhongwen & Michaelides, Michael, 2024. "Linkages between financial and macroeconomic indicators in emerging markets and developing economies," Global Finance Journal, Elsevier, vol. 62(C).
    11. Boermans, Martijn A. & Burger, John D., 2023. "Fickle emerging market flows, stable euros, and the dollar risk factor," Journal of International Economics, Elsevier, vol. 142(C).
    12. Yoshihiko Norimasa & Kazuki Ueda & Tomohiro Watanabe, 2021. "Emerging Economies' Vulnerability to Changes in Capital Flows: The Role of Global and Local Factors," Bank of Japan Working Paper Series 21-E-5, Bank of Japan.
    13. Annamaria Crescenzio & Etienne Lepers, 2025. "Extreme Capital Flow Episodes From the Global Financial Crisis to COVID-19: An Exploration With Monthly Data," Open Economies Review, Springer, vol. 36(1), pages 105-136, February.
    14. Stefan Avdjiev & José María Serena Garralda, 2020. "Regulatory capital, market capital and risk taking in international bank lending," BIS Working Papers 912, Bank for International Settlements.
    15. Forbes, Kristin J. & Warnock, Francis E., 2021. "Capital flow waves—or ripples? Extreme capital flow movements since the crisis," Journal of International Money and Finance, Elsevier, vol. 116(C).
    16. Wang, Xichen & Duan, Xiaomei, 2024. "What leads some countries to experience larger decreases in foreign flows during low-flow episodes? Evidence from international portfolio flows," Journal of International Money and Finance, Elsevier, vol. 148(C).
    17. Chen, Yang & Feng, Yun & Liu, Qing & Zhang, Zhipeng, 2025. "Does benchmark-driven investment amplify the impact of the global financial cycle on emerging markets?," Pacific-Basin Finance Journal, Elsevier, vol. 89(C).
    18. Avdjiev, Stefan & Binder, Stephan & Sousa, Ricardo, 2021. "External debt composition and domestic credit cycles," Journal of International Money and Finance, Elsevier, vol. 115(C).
    19. Michał Ledóchowski & Piotr Żuk, 2020. "What drives portfolio capital inflows into emerging market economies? The role of the Fed’s and ECB’s balance sheet policies," NBP Working Papers 333, Narodowy Bank Polski.
    20. Ledóchowski, Michał & Żuk, Piotr, 2022. "What drives portfolio capital inflows into emerging market economies? The role of the Fed's and ECB's balance sheet policies," Emerging Markets Review, Elsevier, vol. 51(PB).

    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bis:bisqtr:2409d. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Martin Fessler (email available below). General contact details of provider: https://edirc.repec.org/data/bisssch.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.