The US dollar and capital flows to EMEs

R. Gaston Gelos (), Pietro Patelli and Ilhyock Shim

BIS Quarterly Review, 2024

Abstract: Over the past two decades, emerging market economies (EMEs) have shifted their external financing sources away from foreign currency bank lending to local currency bonds and equities. What does this imply for the drivers of capital flows? We document that the strength of the US dollar against advanced economy currencies is a key driver of local currency bond and equity flows as it affects global investors' risk appetite. Moreover, its importance has risen over the past decade, in part driven by a growing role of mutual funds among foreign investors. These findings may help EMEs achieve more stable external financing.

JEL-codes: G12 G15 G21 G23 (search for similar items in EconPapers)
Date: 2024
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