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America First? A US-centric view of global capital flows

Author

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  • McQuade, Peter

    (Central Bank of Ireland)

  • Schmitz, Martin

    (European Central Bank)

Abstract

Both academic researchers and policymakers posit a unique role for the US in the international financial system. This paper investigates the characteristics and determinants of US cross-border financial flows and examines how these contrast with those of the rest of the world. We analyse the relative importance of US, country-specific, and global variables as determinants of aggregate and bilateral US financial flows and as determinants of country-level cross-border financial flows excluding those directly involving the US. Our results indicate that variation in US variables – notably the VIX and US dollar exchange rate – has a quantitatively important influence on global financial flows, but mostly via US cross-border flows. Global and national risk indicators perform better in explaining “rest of the world” flows. Moreover, we find that the correlation between US and rest of the world flows peaks in periods of elevated uncertainty. We interpret our findings as evidence for the existence of a global financial cycle, only some of which is driven by policies and events in the US.

Suggested Citation

  • McQuade, Peter & Schmitz, Martin, 2019. "America First? A US-centric view of global capital flows," Research Technical Papers 2/RT/19, Central Bank of Ireland.
  • Handle: RePEc:cbi:wpaper:2/rt/19
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Akdi, Yilmaz & Varlik, Serdar & Berument, M. Hakan, 2020. "Duration of Global Financial Cycles," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 549(C).
    2. Herzberg, Valerie & McQuade, Peter, 2018. "International bank flows and bank business models since the crisis," Financial Stability Notes 5/FS/18, Central Bank of Ireland.
    3. Martijn Boermans & John Burger, 2020. "Global and local currency effects on euro area investment in emerging market bonds," DNB Working Papers 676, Netherlands Central Bank, Research Department.
    4. Bergant, Katharina & Fidora, Michael & Schmitz, Martin, 2018. "International capital flows at the security level – evidence from the ECB’s asset purchase programme," ECMI Papers 13926, Centre for European Policy Studies.
    5. R. G Gelos & Lucyna Gornicka & Robin Koepke & Ratna Sahay & Silvia Sgherri, 2019. "Capital Flows at Risk: Taming the Ebbs and Flows," IMF Working Papers 19/279, International Monetary Fund.
    6. 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.

    More about this item

    Keywords

    International capital flows; US financial system; VIX; US dollar exchange rate; monetary policy spillovers;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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