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What drives portfolio capital inflows into emerging market economies? The role of the Fed’s and ECB’s balance sheet policies


  • Michał Ledóchowski

    (Narodowy Bank Polski)

  • Piotr Żuk

    (Narodowy Bank Polski)


This paper provides an empirical investigation of the impact of balance sheet policies undertaken by the Fed and the ECB since the Global Financial Crisis of 2009 on portfolio capital flows to emerging market economies (EMEs). The analysis is based upon a panel dataset covering 31 EMEs from different regions throughout the period of 2009-2019. Our results show that quantitative easing by the Fed has translated into capital inflows into EMEs throughout the world. The Fed’s operations have affected both equity and debt flows. However, no such effect could be confirmed in the case of the balance sheet policies launched by ECB, even in the case of economies that remain closely integrated with the eurozone economy such as those from Central and Eastern Europe. These results have relevant policy implications, in particular in light of major central banks expanding their balance sheets in response to the Covid-19 pandemic. Most of all, in those EMEs that remain most vulnerable to capital flows volatility, changes in the Fed’s balance sheet policies may warrant domestic macroeconomic policy adjustment in order to mitigate capital flow volatility to these economies.

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  • Michał Ledóchowski & Piotr Żuk, 2020. "What drives portfolio capital inflows into emerging market economies? The role of the Fed’s and ECB’s balance sheet policies," NBP Working Papers 333, Narodowy Bank Polski.
  • Handle: RePEc:nbp:nbpmis:333

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    References listed on IDEAS

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    More about this item


    capital flows; emerging market economies; unconventional monetary policy spillovers; quantitative easing; balance sheet policies; longer-term refinancing operations;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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