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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
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    References listed on IDEAS

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    Cited by:

    1. Eduardo Amaral & Rafael Guerra & Ilhyock Shim & Alexandre Tombini, 2025. "Financial conditions indices in Latin America," BIS Bulletins 113, Bank for International Settlements.
    2. Avdjiev, Stefan & Gambacorta, Leonardo & Goldberg, Linda S. & Schiaffi, Stefano, 2026. "The risk sensitivity of global liquidity flows: Heterogeneity, evolution and drivers," Journal of International Money and Finance, Elsevier, vol. 161(C).
    3. 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.
    4. Laura Alfaro & Julian Caballero & Bryan Hardy, 2025. "FX debt and optimal exchange rate hedging," BIS Working Papers 1303, Bank for International Settlements.
    5. Emanuel Kohlscheen & Phurichai Rungcharoenkitkul & Dora Xia & Fabrizio Zampolli, 2025. "Macroeconomic impact of tariffs and policy uncertainty," BIS Bulletins 110, Bank for International Settlements.

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    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

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