 FX resilience around the world: Fighting volatile cross-border capital flowsLouisa Chen, Estelle Xue Liu and Zijun Liu International Review of Financial Analysis, 2024, vol. 96, issue PB Abstract: The volatility of cross-border capital flow (CF) has become higher in the last two decades. We use a sample of advanced and emerging market economies in the last two decades, with a focus on portfolio fund flows (equities and bonds). We find that the impact of portfolio CF volatility on exchange rate (FX) volatility is diminished in the short-term if specific economic fundamentals of the country are stronger, especially when these fundamentals pass certain threshold levels. The finding is controlled for different exchange rate regimes and the level of capital control. We further introduce an intuitive FX resilience measure that can be used to assess the stability of exchange rates in the context of heightened CF volatility. The decomposed FX resilience measure shows that the major contributing fundamentals to FX resilience are from the finance channel, including short-term interest rate, fiscal surplus, and financial development. Keywords: Capital flow volatility; Exchange rate volatility; Moderating factors; Exchange rate resilience measure (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:96:y:2024:i:pb:s1057521924006859 DOI: 10.1016/j.irfa.2024.103753 Access Statistics for this article International Review of Financial Analysis is currently edited by B.M. Lucey More articles in International Review of Financial Analysis from Elsevier |
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