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

Monetary Surprises and Global Financial Flows: A Case Study of Latin America

“…Several empirical studies have examined the global effects of conventional and unconventional US monetary policy (Berge & Cao, 2014; Gilchrist, Yue, & Zakrajsek, 2019; McCauley, McGuire, & Sushko, 2015; Rey, 2013; Rogers et al, 2014), the response of emerging market asset prices to US monetary policy (Bowman, Londono, & Sapriza, 2014; Moore et al, 2013; Rogers et al, 2014), and the effect of tapering news on emerging financial markets (Aizenman, Binici, & Hutchison, 2014; Eichengreen & Gupta, 2013). Other papers have studied the effect of monetary policy on portfolio flows to emerging market economies using quarterly IMF balance of payments data (Ahmed & Zlate, 2015; Lim et al, 2014) 3 as well as daily, weekly, and monthly frequency portfolio flow data from EPFR Global (Curcuru, Rosenblum, & Scotti, 2015; Dahlhaus & Vasishtha, 2014; Fratzscher, Duca, & Straub, 2013; Koepke, 2014; Rai & Suchanek, 2014). 4 This article builds upon work by Fischer (2016), which found that Federal Reserve announcements had the greatest effect on portfolio debt flows to Latin America of all the emerging market regions (Asia excluding Japan, Europe Middle East and Africa (EMEA), Latin America, and Global Emerging Market (Global EM)) and examines the effects of announcements on both portfolio equity and debt flows to Latin America, Brazil, and Mexico.…”

“…14.Previous approaches to understanding the response of portfolio fund flows to Federal Reserve monetary policy have relied on VAR methods (Dahlhaus & Vasishtha, 2014; Feroli et al, 2014; IMF, 2014; McCauley et al, 2015; Plantier, 2015; Rai & Suchanek, 2014), OLS regressions (Koepke, 2014), and an event study (Curcuru et al, 2015). …”

Unconventional monetary policy and international equity capital flows to emerging markets

“…Furthermore, our data set consists of equity capital flows to EMs by private global funds (from EPFR Global), enabling us to isolate and study the responsiveness of foreign investors to monetary policies of the major central banks. 4 Second, we contribute to the literature examining the role of the surprise component of monetary policy in explaining capital flows to EMs (Chari et al, 2020;Dahlhaus & Vasishtha, 2020;Koepke, 2018). This is especially relevant because the previous literature has shown this to be an important factor to foreign investors in EMs.…”

“…The majority of the existing literature is centred on Fed monetary policy (e.g., Chari et al, 2020;Dahlhaus & Vasishtha, 2020;Gamboa-Estrada, 2020;Koepke, 2018), whereas evidence from other major central banks is limited despite their important role in the global financial cycle (Chari et al, 2020;Dilts-Stedman, 2019;Fratzscher et al, 2016). We fill this gap by analyzing the impact of monetary policies of two other major central banks in addition to Fed, namely, the European Central Bank (ECB) and the Bank of Japan (BoJ).…”

“…Our contributions to the literature can be summarised as follows. First, we contribute to the literature on the link between UMP and capital flows to emerging markets (Chari et al, 2020;Dahlhaus & Vasishtha, 2020;Gamboa-Estrada, 2020) and extend it by focusing on the UMP undertaken by three major central banks (Fed, ECB and BoJ). Furthermore, our data set consists of equity capital flows to EMs by private global funds (from EPFR Global), enabling us to isolate and study the responsiveness of foreign investors to monetary policies of the major central banks.…”