ECONOMIC RESEARCH

2013 January Capital Flows to Emerging Market Economies

January 22, 2013

Private capital flows to emerging economies have revived strongly, supported by a generally more risk-friendly attitude of investors since mid-2012. The macroeconomic backdrop remains unusually favorable for private capital flows to emerging economies. On the one hand, very easy monetary policy in mature economies and the prospect of poor returns is “pushing” money out of those markets. On the other hand, higher growth in emerging economies, combined with higher interest rates is “pulling” funds in. This “push” versus “pull” debate has taken on new vigor following the latest round central bank easing, notably by the U.S. Federal Reserve. Our research shows that both sets of factors are important.