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Reprint: Monetary policy news in the US: Effects on emerging market capital flows

Tatjana Dahlhaus and Garima Vasishtha

Journal of International Money and Finance, 2021, vol. 114, issue C

Abstract: We examine the impact of US monetary policy news on portfolio flows to emerging markets using a Bayesian Vectorautoregression that accounts for expectations of future monetary policy. We define the US “monetary policy news shock” as one that increases monetary policy expectations while leaving the policy rate unchanged. Results suggest that the impact of this shock on portfolio flows as a share of GDP is economically small on aggregate but varies considerably across countries. The countries we identify as being the most affected also experienced larger volumes of capital in- and outflows before and after the 2013 taper tantrum episode, respectively. Also, macroeconomic performance and external vulnerabilities may matter. However, financial openness does not seem to be associated with differences in effects on capital flows over our sample period.

Keywords: Monetary policy news; Capital flows; International policy transmission; Federal funds rate expectations; Vectorautoregression (search for similar items in EconPapers)
JEL-codes: E52 E58 F42 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.jimonfin.2021.102403

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Handle: RePEc:eee:jimfin:v:114:y:2021:i:c:s0261560621000528