Have QE Programs Affected Capital Flows to Emerging Markets?: A Regional Analysis

In the aftermath of the 2008-2009 financial crisis, international capital flows to emerging markets increased substantially and have remained close to alltime highs, although with volatility. The most recent episode of capital inflows has taken place in the context of extremely accommodative monetary policies in advanced economies, characterized by exceptionally low interest rates and the implementation of unconventional monetary policies, which have generated additional reductions in long-term interest rates. This paper presents an empirical analysis of the drivers of international capital flows to emerging economies in the postcrisis period. Using the pull versus push framework, we estimate a panel for 15 emerging economies, and we find that external factors remain the main determinants of capital flows. Within external factors, QE programs implemented in the United States, measured both directly through treasuries purchases and indirectly through the long-term interest rate, had an impact on capital flows. However, the effect was different across regions, playing an important role in Asia and Latin America. Finally, we found that risk aversion seems to be an important driver of these flows for all regions.