IDEAS home Printed from https://ideas.repec.org/a/plo/pone00/0319570.html
   My bibliography  Save this article

Dollar shocks and cross-border capital flows: Evidence from 33 emerging economies

Author

Listed:
  • Minjie Hu
  • Xuemei Yuan

Abstract

Under the dollar-dominated international monetary system, the cross-border capital flows of emerging economies reverse sharply following policy shifts by the Fed. To investigate the sensitivity of cross-border capital inflows to dollar shocks, we analyze 33 emerging economies from 2006Q1 to 2021Q4 and use the panel quantile model to explore the dynamic evolution of dollar appreciation shocks at different stages of capital inflows, especially the tail effects. We find that dollar appreciation shocks reduce the total cross-border capital inflows of emerging economies. This impact is mainly through internal and external financial cycle difference channels. Dollar shock impacts differ significantly across different quantiles of capital inflows. Specifically, dollar appreciation shifts the capital inflow to the left and increases the severity of the left-tail risk of capital flows. More flexible exchange rate regimes exacerbate the negative effects of dollar shocks across the distribution of capital inflows. The moderating effect of the fixed exchange rate and intermediate exchange rate systems on external shocks are effective in low quantiles of capital inflows. The sensitivity of “capital flows at risk” to dollar shocks depends on national structural characteristics. As a key risk factor for emerging economies, US dollar appreciation can predict the trend of cross-border capital inflows. Countries should adopt policy measures to curb the adverse effects of US dollar fluctuations.

Suggested Citation

  • Minjie Hu & Xuemei Yuan, 2025. "Dollar shocks and cross-border capital flows: Evidence from 33 emerging economies," PLOS ONE, Public Library of Science, vol. 20(3), pages 1-22, March.
    • Handle: RePEc:plo:pone00:0319570
    DOI: 10.1371/journal.pone.0319570
    as

    Download full text from publisher

    File URL: https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0319570
    Download Restriction: no
    File URL: https://journals.plos.org/plosone/article/file?id=10.1371/journal.pone.0319570&type=printable
    Download Restriction: no
    File URL: https://libkey.io/10.1371/journal.pone.0319570?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. 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.
    2. Eguren-Martin, Fernando & O'Neill, Cian & Sokol, Andrej & von dem Berge, Lukas, 2024. "Capital flows-at-risk: Push, pull and the role of policy," Journal of International Money and Finance, Elsevier, vol. 147(C).
    3. Eugenio Cerutti & Stijn Claessens & Andrew K. Rose, 2019. "How Important is the Global Financial Cycle? Evidence from Capital Flows," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 67(1), pages 24-60, March.
    4. Chari, Anusha & Dilts Stedman, Karlye & Lundblad, Christian, 2022. "Global Fund Flows and Emerging Market Tail Risk," CEPR Discussion Papers 17697, C.E.P.R. Discussion Papers.
    Full references (including those not matched with items on IDEAS)

    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. Huang, Xiaowei & He, Chenyu & Zhang, Man, 2024. "Economic policy uncertainty and capital flows' tail risk in China," Pacific-Basin Finance Journal, Elsevier, vol. 85(C).
    2. Eguren-Martin, Fernando & O'Neill, Cian & Sokol, Andrej & von dem Berge, Lukas, 2024. "Capital flows-at-risk: Push, pull and the role of policy," Journal of International Money and Finance, Elsevier, vol. 147(C).
    3. 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).
    4. Gloria González‐Rivera & C. Vladimir Rodríguez‐Caballero & Esther Ruiz, 2024. "Expecting the unexpected: Stressed scenarios for economic growth," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 39(5), pages 926-942, August.
    5. Mariarosaria Comunale & Markus Eller & Mathias Lahnsteiner, 2020. "Assessing credit gaps in CESEE based on levels justified by fundamentals – a comparison across different estimation approaches," Bank of Lithuania Working Paper Series 74, Bank of Lithuania.
    6. Wang, Mengjiao & Liu, Jianxu & Yang, Bing, 2024. "Does the strength of the US dollar affect the interdependence among currency exchange rates of RCEP and CPTPP countries?," Finance Research Letters, Elsevier, vol. 62(PA).
    7. Martínez, Juan Francisco & Oda, Daniel, 2021. "Characterization of the Chilean financial cycle, early warning indicators and implications for macro-prudential policies," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 2(1).
    8. Szczygielski, Jan Jakub & Charteris, Ailie & Obojska, Lidia & Brzeszczyński, Janusz, 2025. "Energy in turmoil: Industry resilience to uncertainty during the global energy crisis," Applied Energy, Elsevier, vol. 389(C).
    9. 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.
    10. Agur, Itai & Chan, Melissa & Goswami, Mangal & Sharma, Sunil, 2019. "On international integration of emerging sovereign bond markets," Emerging Markets Review, Elsevier, vol. 38(C), pages 347-363.
    11. Linda S. Goldberg & Signe Krogstrup, 2018. "International Capital Flow Pressures," NBER Working Papers 24286, National Bureau of Economic Research, Inc.
    12. Jonathan Kearns & Andreas Schrimpf & Fan Dora Xia, 2023. "Explaining Monetary Spillovers: The Matrix Reloaded," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(6), pages 1535-1568, September.
    13. Rivolta, Giulia & Trecroci, Carmine, 2020. "Measuring the effects of U.S. uncertainty and monetary conditions on EMEs' macroeconomic dynamics," MPRA Paper 99403, University Library of Munich, Germany.
    14. Marlene Amstad & Beatrice Weder di Mauro, 2017. "Long-run effects of exchange rate appreciation: Another puzzle?," Aussenwirtschaft, University of St. Gallen, School of Economics and Political Science, Swiss Institute for International Economics and Applied Economics Research, vol. 68(01), pages 63-82, December.
    15. 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).
    16. Ateş-Saygılı, Çiğdem, 2024. "Resilient forces: The role of intangible capital in mitigating financial contagion dynamics," Research in Economics, Elsevier, vol. 78(4).
    17. Goldberg, Linda S. & Krogstrup, Signe, 2023. "International capital flow pressures and global factors," Journal of International Economics, Elsevier, vol. 146(C).
    18. Christian Friedrich & Pierre Guérin & Danilo Leiva-Leon, 2020. "Monetary Policy Independence and the Strength of the Global Financial Cycle," Staff Working Papers 20-25, Bank of Canada.
    19. Jorge Lorca, 2021. "Capital Flows and Emerging Markets Fluctuations," Working Papers Central Bank of Chile 898, Central Bank of Chile.
    20. 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).

    More about this item

    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:plo:pone00:0319570. 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: plosone (email available below). General contact details of provider: https://journals.plos.org/plosone/ .

    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.