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Documents & Resources

Publication
April 23, 2015
This paper provides a concise summary of the vast literature on the drivers of capital flows to emerging markets. The importance of different drivers varies across different kinds of capital flows (Figure 1). External "push" factors like U.S. interest rates and global risk aversion matter most for portfolio flows. By contrast, domestic "pull" factors like growth and country risk are most important for banking flows.
Publication
January 14, 2015

After a rough ride in 2014, we expect 2015 to be another stressful year for capital flows to emerging markets. We project total EM inflows to decline further, after a substantial drop last year, as the Fed starts to raise policy rates and EM growth remains lackluster. Flows during the year are again likely to be volatile, as markets are affected by shifting expectations of the Fed’s policy trajectory, oil market uncertainty and political risks.

Publication
January 14, 2015

This note provides estimation details that complement analysis presented in our January 2015 EM Capital Flows Report (pages 11-13). We estimate a simple econometric model to examine the link between the incidence of emerging market crises and Fed tightening cycles. Our results suggest that there is a close relationship between U.S. monetary policy and EM crises. Initial rate hikes by the Fed are associated with a higher incidence of EM crises, especially when Fed tightening occurs faster than market participants expected.

Publication
October 2, 2014

Capital flows to emerging markets have continued to be very choppy. Flows surged over the summer, particularly to Emerging Asia, but have dipped sharply since August. We project total private inflows to reach about $1,160 billion in 2014, which would still be $80 billion below the 2013 level — primarily due to the collapse of flows to Russia. Inflows have been supported by the prospect of additional ECB easing, at a time when the Fed’s steps towards exit have been very gradual. Going forward, increasing divergence in Fed and ECB monetary policy settings will provide a more ambivalent external environment for emerging markets that could lead to renewed volatility.

Publication
May 29, 2014

Private capital inflows to emerging markets are benefiting from a supportive global environment, including an improving macro outlook and strong risk appetite. The crisis in Ukraine is weighing heavily on flows to Russia, however, which is likely to result in a decline in aggregate capital flows to EMs in 2014. This projected decline also reflects reduced inflows to China, given the government’s efforts to discourage short-term capital inflows. Capital flows to EMs remain vulnerable to a possible escalation of the Ukraine crisis and surprises in the timing, pace and magnitude of eventual Fed policy tightening.

Following the publication of the May 2014 Capital Flows Report, Charles Collyns hosted a teleconference on May 29, 2014. The recording of the briefing and the Q & A session is now available for replay.

Download the teleconference

Publication
March 12, 2014
Publication
January 30, 2014

Emerging market conditions have continued to be quite choppy, including a significant market correction in early 2014. We do not anticipate a sustained pull-back from emerging markets, but investors have become increasingly sensitive to country risks, which will test countries that experience heightened political uncertainties or do not take timely and decisive measures to address weaknesses in policy frameworks. As our baseline scenario, we continue to expect a gradual rebound in capital flows in 2014 and 2015, in line with a projected sustained pick-up in world growth and a gradual Fed exit. However, flows will remain at a much lower level relative to GDP than over 2010-2012 and uncertainty around our baseline projection remains high.

Publication
October 7, 2013

Capital flows to emerging economies have seen a sharp retrenchment since mid-May 2013, prompted in part by a shift in market expectations towards an earlier normalization of U.S. monetary policy. In the immediate future, EM capital inflows look set for a rebound, in part because the Fed has delayed its tapering of asset purchases. We project that this recovery will be sustained through 2014, barring any major shift in market views about the course of Fed monetary tightening. Capital inflows are likely to be less buoyant than in recent years, however, as the fundamental underpinnings of EM growth have deteriorated.

Publication
June 26, 2013

The environment for capital flows to emerging economies has worsened recently. Global risk aversion has surged amid concerns about the duration of ultra-easy U.S. monetary policy, sending ripples through EMs. EM currencies have plummeted in recent months, driven in part by a reversal of portfolio equity flows and reduced bond inflows since March. Overall, we project that private capital inflows to EMs will amount to $1,145bn this year, a decline of $36bn relative to 2012. Capital outflows by EM residents continue to grow, with “private” (non-reserve) outflows projected to reach $1 trillion in 2013, a 10-fold increase since the early 2000s.

Publication
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.