Push Factors and Capital Flows to Emerging Markets: Why Knowing Your Lender Matters More than Fundamentals

By Eugenio Cerutti, Stijn Claessens, Damien Puy. Social Science Research Network, 2015

236 citations recorded by the source corpus.

This paper analyzes the behavior of gross capital inflows across 34 emerging markets (EMs). We first confirm that aggregate inflows to EMs co-move considerably. We then report three findings (i) the aggregate co-movement conceals significant heterogeneity across asset types as only bank-related and portfolio bond and equity inflows do co-move; (ii) while global push factors in advanced economies mostly explain the common dynamics, their relative importance varies by type of flow; and (iii) the sensitivity to common dynamics varies significantly across borrower countries, with market structure characteristics (especially the composition of the foreign investor base and the level of liquidity) rather than borrower country’s institutional fundamentals strongly affecting sensitivities. Countries relying more on international funds and global banks are found to be more sensitive to push factors. Our findings suggest that EMs need to closely monitor their lenders and investors to assess their inflow exposures to global push factors.

View Paper: https://www.semanticscholar.org/paper/b5bc610188b196cdc5f4e649db3d4e9d8dac589c

Citations in the corpus

• U.S. Monetary Policy and International Risk Spillovers (2019, background): “See, for example, Cerutti et al. (2019) who argues that the correlation between the VIX and capital flows is not very strong outside crisis.”
• Capital flows and the international credit channel (2017, unknown): “(2013); Bruno and Shin (2015a,b); Cerutti et al. (2015); Miranda-Agrippino and Rey (2015); Hofmann et al. (2016).(7) Our paper differs from this literature in that we not only show the exogenous effect of capital flows on the domestic credit cycle, but we also provide novel evidence on the internati”