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Capital inflows to emerging countries and their sensitivity to the global financial cycle

Author

Listed:
  • Ines Buono

    (Bank of Italy)

  • Flavia Corneli

    (Bank of Italy)

  • Enrica Di Stefano

    (Bank of Italy)

Abstract

We study how the effect of global and domestic factors on capital flows towards emerging economies has changed in the last 25 years. We find that both the global financial crisis and the so-called ‘taper tantrum’ event, when investors perceived the end of the US Federal Reserve’s unconventional monetary policy, triggered changes in the sensitivity of capital inflows to their main drivers. In particular, we provide evidence that during the period between the global financial crisis and the taper tantrum, international investors devoted less attention to domestic factors. Nevertheless, the taper tantrum marked the beginning of a new phase, characterized by increased sensitivity to both global factors and domestic vulnerabilities.

Suggested Citation

  • Ines Buono & Flavia Corneli & Enrica Di Stefano, 2020. "Capital inflows to emerging countries and their sensitivity to the global financial cycle," Temi di discussione (Economic working papers) 1262, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:wptemi:td_1262_20
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    Cited by:

    1. 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.
    2. Antonelli, Stefano & Corneli, Flavia & Ferriani, Fabrizio & Gazzani, Andrea, 2022. "Benchmark effects from the inclusion of Chinese A-shares in the MSCI EM index," Economics Letters, Elsevier, vol. 216(C).
    3. Luigi Bonatti & Andrea Fracasso & Roberto Tamborini, 2021. "Monetary and Fiscal Spillovers Across the Atlantic: The Role of Financial Markets," DEM Working Papers 2021/09, Department of Economics and Management.
    4. Bank for International Settlements, 2021. "Changing patterns of capital flows," CGFS Papers, Bank for International Settlements, number 66.

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    More about this item

    Keywords

    international capital movements; uncertainty; global financial cycle; VIX; non-linearities;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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