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Is trouble brewing for EMEs?

In: What do new forms of finance mean for EM central banks?

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  • Manuel Ramos-Francia

    (Bank of Mexico)

  • Santiago García-Verdú

    (Bank of Mexico)

Abstract

Financial stability discussions have mainly revolved around the degree of leverage in financial institutions. Yet, some authors have argued that there might be mechanisms associated with unleveraged institutions that could entail financial instability. We aim to shed light on the possible presence of run-like dynamics in the bond fund flows to and from a group of Emerging Market Economies (EMEs). We examine some of the US monetary policy's implications on these dynamics. As argued, e.g., in Feroli et al. (2014), given the type of incentives many funds face, run-like dynamics might take place, although such funds are mostly unleveraged. We find evidence of the presence of run-like dynamics in the bond flows in several EMEs. We also find evidence that changes in US monetary policy affect such dynamics.
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Suggested Citation

  • Manuel Ramos-Francia & Santiago García-Verdú, 2015. "Is trouble brewing for EMEs?," BIS Papers chapters, in: Bank for International Settlements (ed.), What do new forms of finance mean for EM central banks?, volume 83, pages 243-272, Bank for International Settlements.
    • Handle: RePEc:bis:bisbpc:83-15
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    References listed on IDEAS

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    1. Eduardo Borensztein & R. Gaston Gelos, 2003. "A Panic-Prone Pack? The Behavior of Emerging Market Mutual Funds," IMF Staff Papers, Palgrave Macmillan, vol. 50(1), pages 1-3.
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    8. Chen, Qi & Goldstein, Itay & Jiang, Wei, 2010. "Payoff complementarities and financial fragility: Evidence from mutual fund outflows," Journal of Financial Economics, Elsevier, vol. 97(2), pages 239-262, August.
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    Cited by:

    1. Manuel Ramos-Francia & Santiago García-Verdú, 2016. "Macroprudential policy regulation: some continuing challenges," BIS Papers chapters, in: Bank for International Settlements (ed.), Macroprudential policy, volume 86, pages 85-93, Bank for International Settlements.
    2. Charles W. Calomiris & Mauricio Larrain & Sergio L. Schmukler & Tomas Williams, 2019. "Search for Yield in Large International Corporate Bonds: Investor Behavior and Firm Responses," NBER Working Papers 25979, National Bureau of Economic Research, Inc.
    3. Jimmy Shek & Ilhyock Shim & Hyun Song Shin, 2018. "Investor Redemptions and Fund Manager Sales of Emerging Market Bonds: How Are They Related? [Borrow cheap, buy high? The determinants of leverage and pricing in buyouts]," Review of Finance, European Finance Association, vol. 22(1), pages 207-241.
    4. Jhuvesh Sobrun & Philip Turner, 2015. "Bond markets and monetary policy dilemmas for the emerging markets," BIS Working Papers 508, Bank for International Settlements.
    5. Valentina Bruno & Hyun Song Shin, 2017. "Global Dollar Credit and Carry Trades: A Firm-Level Analysis," The Review of Financial Studies, Society for Financial Studies, vol. 30(3), pages 703-749.
    6. Christian Friedrich & Pierre Guérin, 2020. "The Dynamics of Capital Flow Episodes," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(5), pages 969-1003, August.
    7. Ashima Goyal & Rajeswari Sengupta & Akhilesh Verma, 2019. "External debt financing and macroeconomic instability in emerging market economies," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2019-013, Indira Gandhi Institute of Development Research, Mumbai, India.

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    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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