Lessons from recent experiences on exchange rates, capital flows and financial conditions in EMEs

Pietro Patelli, Jimmy Shek and Ilhyock Shim

No 79, BIS Bulletins from Bank for International Settlements

Abstract: Currency appreciation in emerging market economies (EMEs) has gone hand in hand with greater risk-taking, higher capital flows and more accommodative financial conditions, against the backdrop of the increasing share of foreign investment in local currency assets in EMEs' external financing since 2007. The historically positive correlation between US dollar strength against EME currencies and EME sovereign bond spreads over US Treasuries up to 2021 continued in Latin America but reversed in emerging Asia in 2022–23. Such a divergence reflects a range of policy responses by EME central banks in the face of the unprecedented combination of shocks in 2022. In particular, central banks in emerging Asia intervened more actively in FX markets and relied less on monetary policy tightening than those in Latin America.

Pages: 9 pages
Date: 2023-11-02
New Economics Papers: this item is included in nep-cba, nep-mon and nep-opm
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.bis.org/publ/bisbull79.pdf Full PDF document (application/pdf)
https://www.bis.org/publ/bisbull79.htm (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bis:bisblt:79

Access Statistics for this paper

More papers in BIS Bulletins from Bank for International Settlements Contact information at EDIRC.
Bibliographic data for series maintained by Martin Fessler ().