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

Fuertes, A.; Phylaktis, K.; Yan, C.

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Authors

A. Fuertes

K. Phylaktis

C. Yan



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.

Citation

Fuertes, A., Phylaktis, K., & Yan, C. (2016). Hot money in bank credit flows to emerging markets during the banking globalization era. Journal of International Money and Finance, 60, 29-52. https://doi.org/10.1016/j.jimonfin.2014.10.002

Journal Article Type Article
Acceptance Date Oct 21, 2014
Online Publication Date Oct 31, 2014
Publication Date Feb 1, 2016
Deposit Date Oct 22, 2015
Publicly Available Date May 1, 2016
Journal Journal of International Money and Finance
Print ISSN 0261-5606
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 60
Pages 29-52
DOI https://doi.org/10.1016/j.jimonfin.2014.10.002
Keywords International capital flows, Hot money, Crisis transmission, Banking globalisation, Kalman filter.
Public URL https://durham-repository.worktribe.com/output/1397114

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