Cross-Border Capital Flows in Emerging Markets: Demand-Pull or Supply-Push?

Cross-Border Capital Flows in Emerging Markets: Demand-Pull or Supply-Push?

Title:

Cross-Border Capital Flows in Emerging Markets: Demand-Pull or Supply-Push?

Number:

16/15

Author(s):

Kurmaş Akdoğan, Neslihan Kaya Ekşi, Ozan Ekşi

Language:

English

Date:

June 2016

Abstract:

We disentangle the cross-border capital flows into demand-pull and supply-push components for four selected emerging markets: Brazil, Indonesia, Malaysia and Turkey. We employ vector autoregressions with sign restrictions method, using two variables: noncore liabilities of banks and the money market rates. Demand shocks are defined as those that move these two variables in the same direction and supply shocks as those that move them in opposite directions. Our results imply that, in the wake of the global financial crisis, worsening demand conditions in the recipient countries and the high levels of uncertainty were the main determinants of the decline in cross border flows. However, once the unconventional policy measures by the advanced economies were put into effect, the proliferation of global liquidity worked as a push factor for cross border flows.

Keywords:

Financial stability, Capital flows, Non-core liabilities, Sign restrictions

JEL Codes:

C32; E44; G21

Cross-Border Capital Flows in Emerging Markets: Demand-Pull or Supply-Push?
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