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Reprint: Monetary policy news in the US: Effects on emerging market capital flows

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  • Dahlhaus, Tatjana
  • Vasishtha, Garima

Abstract

We examine the impact of US monetary policy news on portfolio flows to emerging markets using a Bayesian Vectorautoregression that accounts for expectations of future monetary policy. We define the US “monetary policy news shock” as one that increases monetary policy expectations while leaving the policy rate unchanged. Results suggest that the impact of this shock on portfolio flows as a share of GDP is economically small on aggregate but varies considerably across countries. The countries we identify as being the most affected also experienced larger volumes of capital in- and outflows before and after the 2013 taper tantrum episode, respectively. Also, macroeconomic performance and external vulnerabilities may matter. However, financial openness does not seem to be associated with differences in effects on capital flows over our sample period.

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  • Dahlhaus, Tatjana & Vasishtha, Garima, 2021. "Reprint: Monetary policy news in the US: Effects on emerging market capital flows," Journal of International Money and Finance, Elsevier, vol. 114(C).
    • Handle: RePEc:eee:jimfin:v:114:y:2021:i:c:s0261560621000528
    DOI: 10.1016/j.jimonfin.2021.102403
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    More about this item

    Keywords

    Monetary policy news; Capital flows; International policy transmission; Federal funds rate expectations; Vectorautoregression;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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