Exchange rate regimes as thresholds: The main determinants of capital inflows in emerging market economies


ÖZMEN E., Taşdemir F.

Borsa Istanbul Review, vol.23, no.6, pp.1282-1288, 2023 (SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 23 Issue: 6
  • Publication Date: 2023
  • Doi Number: 10.1016/j.bir.2023.08.003
  • Journal Name: Borsa Istanbul Review
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus, EconLit, Directory of Open Access Journals
  • Page Numbers: pp.1282-1288
  • Keywords: Capital inflows, Emerging market economies, Exchange rate regimes, Global financial conditions, Panel threshold model
  • Middle East Technical University Affiliated: Yes

Abstract

We investigate whether the impacts of the main push (global financial conditions, GFC) and pull (growth) factors on capital inflows are invariant to endogenously estimated thresholds for exchange rate regimes (ERRs) in emerging market economies. The impact of GFC is higher under more flexible ERRs for aggregate capital and portfolio inflows. FDI inflows are determined by growth. The sensitivity of aggregate and other investment inflows to growth is higher under more rigid ERRs. Our results also suggest that managed ERRs encourage capital inflows by allowing countries to import the monetary policy credibility of the anchored country and to provide an exchange rate guarantee.