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

Sangwon Suh and Byung-Soo Koo ()
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Byung-Soo Koo: Daegu-Gyeongbuk Branch, Bank of Korea

No 2016-4, Working Papers from Economic Research Institute, 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.

Keywords: Capital flows; Unconventional monetary policy; Emerging markets; Cross-border borrowings (search for similar items in EconPapers)
JEL-codes: F37 F42 G15 G18 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2016-03-23
New Economics Papers: this item is included in nep-ifn and nep-mon
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http://papers.bok.or.kr/RePEc_attach/wpaper/english/wp-2016-4.pdf Working Paper, 2016 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:bok:wpaper:1604

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