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Capital flows and emerging market economies since the global financial crisis

In: Foreign Exchange Constraint and Developing Economies

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  • Canuto Otaviano

Abstract

The decade after the global financial crisis of 2007-2009 brought significant changes in the volume and composition of capital flows in the global economy. Portfolio investments and other non-bank financial intermediaries are responsible for an increasing share of foreign capital flows, while banking flows have shrunk in relative terms. This chapter considers the implications of such a metamorphosis of finance for capital flows to emerging market economies (EMEs). After examining capital flows from the global financial crisis to the 2020-2021 pandemic crisis, we analyse the extent to which normalization of monetary policies in advanced economies may lead to shocks in those flows, as well as why exchange rate fluctuations between the US dollar and other major currencies can affect capital flows to EMEs. Finally, we assess the range of policy instruments that EME policymakers tend to resort to to manage risks derived from capital-flow volatility.

Suggested Citation

  • Canuto Otaviano, 2023. "Capital flows and emerging market economies since the global financial crisis," Chapters, in: Aleksandr V. Gevorkyan (ed.), Foreign Exchange Constraint and Developing Economies, chapter 10, pages 208-222, Edward Elgar Publishing.
    • Handle: RePEc:elg:eechap:20432_10
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    References listed on IDEAS

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    1. Canuto, Otaviano & Cavallari, Matheus, 2013. "Monetary policy and macroprudential regulation : whither emerging markets," Policy Research Working Paper Series 6310, The World Bank.
    2. Sirio Aramonte & Andreas Schrimpf & Hyun Song Shin, 2023. "Non-bank financial intermediaries and financial stability," Chapters, in: Refet S. Gürkaynak & Jonathan H. Wright (ed.), Research Handbook of Financial Markets, chapter 7, pages 147-170, Edward Elgar Publishing.
    3. Boris Hofmann & Taejin Park, 2020. "The broad dollar exchange rate as an EME risk factor," BIS Quarterly Review, Bank for International Settlements, December.
    4. Sebastian Edwards, 2021. "Macroprudential Policies and The Covid-19 Pandemic: Risks and Challenges For Emerging Markets," NBER Working Papers 29441, National Bureau of Economic Research, Inc.
    5. Canuto, Otaviano & Ghosh, Swati, 2013. "Dealing with the Challenges of Macro Financial Linkages in Emerging Markets," World Bank - Economic Premise, The World Bank, issue 129, pages 1-8, November.
    6. Samer Shousha, 2019. "The Dollar and Emerging Market Economies: Financial Vulnerabilities Meet the International Trade System," International Finance Discussion Papers 1258, Board of Governors of the Federal Reserve System (U.S.).
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