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Spillovers from U.S. Unconventional Monetary Policy and Its Normalization to Emerging Markets: A Capital Flow Perspective

Author

Listed:
  • Sangwon Suh

    (School of Economics, Chung-Ang University)

  • Byung-Soo Koo

    (Daegu-Gyeongbuk Branch, Bank of Korea)

Abstract

Policy makers employed unconventional monetary policy (UMP) tools to respond to the recent global financial crisis in the U.S. and other advanced economies, and the UMP is about to be normalized. In this paper, we try to quantitiatively assess the effects of the UMP and its normalization on capital flows to emerging market economies. We find that the UMP significantly affected capital flows on average. The effects of the normalization are closely related with the effects of the UMP. Importantly, the larger the capital inflows due to the UMP, the larger the capital outflows due to the normalization. Moreover, policy makers need to be careful of a potential risk of unexpected capital outflows (exceeding the expected ones) during an uncertain period whose size tends to be proportional to the size of the previous capital inflows.

Suggested Citation

  • Sangwon Suh & Byung-Soo Koo, 2016. "Spillovers from U.S. Unconventional Monetary Policy and Its Normalization to Emerging Markets: A Capital Flow Perspective," Working Papers 2016-4, Economic Research Institute, Bank of Korea.
    • Handle: RePEc:bok:wpaper:1604
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Capital flows; Unconventional monetary policy; Emerging markets; Cross-border borrowings;
    All these keywords.

    JEL classification:

    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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