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Hot money in bank credit flows to emerging markets during the banking globalization era

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  • Fuertes, Ana-Maria
  • Phylaktis, Kate
  • Yan, Cheng

Abstract

This paper investigates the relative importance of hot money in bank credit and portfolio flows from the US to 18 emerging markets over the period 1988–2012. We deploy state-space models à la Kalman filter to identify the unobserved hot money as the temporary component of each type of flow. The analysis reveals that the importance of hot money relative to the permanent component in bank credit flows has significantly increased during the 2000s relative to the 1990s. This finding is robust to controlling for the influence of push and pull factors in the two unobserved components. The evidence supports indirectly the view that global banks have played an important role in the transmission of the global financial crisis to emerging markets, and endorses the use of regulations to manage international capital flows.

Suggested Citation

  • Fuertes, Ana-Maria & Phylaktis, Kate & Yan, Cheng, 2016. "Hot money in bank credit flows to emerging markets during the banking globalization era," Journal of International Money and Finance, Elsevier, vol. 60(C), pages 29-52.
    • Handle: RePEc:eee:jimfin:v:60:y:2016:i:c:p:29-52
    DOI: 10.1016/j.jimonfin.2014.10.002
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    5. Yan, Cheng & Phylaktis, Kate & Fuertes, Ana-Maria, 2016. "On cross-border bank credit and the U.S. financial crisis transmission to equity markets," Journal of International Money and Finance, Elsevier, vol. 69(C), pages 108-134.
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    More about this item

    Keywords

    International capital flows; Hot money; Crisis transmission; Banking globalisation; Kalman filter;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G1 - Financial Economics - - General Financial Markets

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