Tinker, Taper, QE, Bye? The Effect of Quantitative Easing on Financial Flows to Developing Countries

This paper examines gross financial inflows to developing countries between 2000 and 2013, with a particular focus on the potential effects of quantitative easing policies in the United States and other high-income countries. The paper finds evidence for potential transmission of quantitative easing along observable liquidity, portfolio balancing, and confidence channels. Moreover, quantitative easing had an additional effect over and above these observable channels, which the paper argues cannot be attributed to either market expectations or changes in the structural relationships between inflows and observable fundamentals. The baseline estimates place the lower bound of the effect of quantitative easing at around 5 percent of gross inflows (for the average developing economy), which suggests that of the 62 percent increase in inflows during 2009-13 related to changing global monetary conditions, at least 13 percent of this was attributable to quantitative easing. The paper also finds evidence of heterogeneity among different types of flows; portfolio (especially bond) flows tend to be more sensitive than foreign direct investment to our measured effects from quantitative easing. Finally, the paper performs simulations that explore the potential effects of the withdrawal of quantitative easing on financial flows to developing countries.

Bibliographic Details

Main Authors:	Lim, Jamus Jerome, Mohapatra, Sanket, Stocker, Marc
Language:	English en_US
Published:	World Bank, Washington, DC 2014-03
Subjects:	ACCOUNTING, ALTERNATIVE INVESTMENTS, ARBITRAGES, ASSET CLASSES, ASSET PRICE, ASSET PURCHASE, BALANCE OF PAYMENTS, BALANCE OF PAYMENTS FLOWS, BALANCE SHEET, BALANCE SHEETS, BANK ASSET, BANK LENDING, BANK LOANS, BASIS POINT, BASIS POINTS, BENCHMARK, BOND, BOND FLOWS, BOND FUNDS, BORROWING COSTS, CAPITAL FLOW, CAPITAL FLOWS, CAPITAL INFLOWS, CAPITAL MOBILITY, CENTRAL BANK, CENTRAL BANK ASSET, CENTRAL BANKS, CHECKS, CONTROL VARIABLES, COST OF CAPITAL, COUNTRY FIXED EFFECTS, COUNTRY RISK, COVARIANCE MATRIX, CREDIBILITY, CREDIT DEFAULT, CREDIT DEFAULT SWAP, CROSS-BORDER CAPITAL, CUMULATIVE INFLOWS, CURRENCY, CURVE YIELD, DEBT, DEBT BURDEN, DEFLATION, DEPENDENT VARIABLE, DEPRECIATIONS, DEVELOPING COUNTRIES, DEVELOPING COUNTRY, DEVELOPING ECONOMIES, DEVELOPING ECONOMY, DEVELOPMENT POLICY, DUMMY VARIABLES, ECONOMETRIC MODEL, ECONOMETRICS, ECONOMIC CONDITIONS, ECONOMIC ENVIRONMENTS, ECONOMIC RESEARCH, ELASTICITY, EMERGING ECONOMIES, EMERGING MARKET, EMERGING MARKET ECONOMIES, EMERGING MARKETS, EQUITIES, EQUITY FLOWS, EQUITY MARKET, EQUITY MARKETS, EQUITY PRICES, EXCHANGE RATE, EXCHANGE RATE APPRECIATION, EXCHANGE RATES, EXPANSIONARY MONETARY POLICY, EXPLANATORY VARIABLES, FEDERAL RESERVE, FEDERAL RESERVE SYSTEM, FINANCIAL ASSETS, FINANCIAL CAPITAL, FINANCIAL CRISIS, FINANCIAL DEVELOPMENT, FINANCIAL FLOW, FINANCIAL FLOWS, FINANCIAL INFLOWS, FINANCIAL MARKET, FINANCIAL MARKETS, FISCAL POLICY, FIXED EFFECT, FIXED INCOME, FORECASTS, FOREIGN DIRECT INVESTMENT, FOREIGN DIRECT INVESTORS, FOREIGN EXCHANGE, FOREIGN EXCHANGE RESERVES, FOREIGN HOLDINGS, FORWARD RATE, FUTURE RESEARCH, FUTURES, FUTURES CONTRACT, GDP, GLOBAL CAPITAL, GLOBAL CAPITAL FLOWS, GLOBAL ECONOMIC PROSPECTS, GLOBAL ECONOMY, GLOBAL FUND, GOVERNMENT BONDS, GROWTH RATE, GROWTH RATES, HIGH-INCOME COUNTRIES, INCOME INSTRUMENTS, INDICATOR VARIABLE, INDICATOR VARIABLES, INFLATION, INFLATION DIFFERENTIAL, INFLATION DIFFERENTIALS, INSTITUTIONAL INVESTOR, INTEREST RATE, INTEREST RATE DIFFERENTIAL, INTEREST RATE DIFFERENTIALS, INTEREST RATE SPREAD, INTERNATIONAL BANK, INTERNATIONAL BANK LENDING, INTERNATIONAL ECONOMICS, INTERNATIONAL EQUITY, INTERNATIONAL FINANCE, INTERNATIONAL FINANCIAL MARKETS, INTERNATIONAL FINANCIAL STATISTICS, INTERNATIONAL SETTLEMENTS, INVESTABLE FUNDS, INVESTING, INVESTMENT ACTIVITY, INVESTMENT ALTERNATIVE, LIQUID ASSETS, LIQUIDITY, LIQUIDITY PREMIUM, LOAN, LONG BONDS, LONG-TERM ASSETS, LONG-TERM COST, LONG-TERM INTEREST, LONG-TERM INTEREST RATE, LONG-TERM YIELDS, M2, MACROECONOMIC VARIABLES, MACROECONOMICS, MARKET CONDITIONS, MARKET EXPECTATIONS, MARKET RETURNS, MONETARY CONDITIONS, MONETARY FUND, MONETARY POLICIES, MONETARY POLICY, MONEY SUPPLY, MORTGAGE, MORTGAGE-BACKED SECURITIES, MUTUAL FUNDS, NOMINAL INTEREST RATE, NOMINAL INTEREST RATES, OPPORTUNITY COST, OUTPUT, POLITICAL ECONOMY, POLITICAL RISK, PORTFOLIO, PORTFOLIO CAPITAL, PORTFOLIO FLOW, PORTFOLIO FLOWS, PORTFOLIOS, POST-CRISIS PERIOD, PRIVATE BANKS, PRIVATE CREDIT, PUSH FACTORS, RAPID EXPANSION, REAL EFFECTIVE EXCHANGE RATES, REAL EXCHANGE RATE, REAL GDP, REAL INTEREST, REAL INTEREST RATE, RETURN, RETURNS, RISKY ASSETS, ROBUSTNESS CHECK, ROBUSTNESS CHECKS, SECONDARY MARKET, SECONDARY MARKET TRANSACTIONS, SECONDARY MARKETS, SECURITIES, SECURITIES MARKET, SHORT-TERM BILLS, SHORT-TERM INTEREST RATE, SHORT-TERM INTEREST RATES, SHORT-TERM RATES, SLOWDOWN, STANDARD DEVIATION, STANDARD DEVIATIONS, STOCK PRICES, T-BILL, T-BILL RATE, TOTAL MARKET, TRADE CREDIT, TREASURIES, TREASURY, TREASURY BILL, TREASURY BILL RATE, TREASURY BILLS, TREASURY NOTE, TREASURY YIELDS, UNCERTAINTY, UNDERESTIMATES, VARIANCE-COVARIANCE MATRIX, VOLATILITY, WEAK ASSET, WITHDRAWAL, WORLD DEVELOPMENT INDICATORS, WORLD ECONOMY, WORLD EQUITY, WORLD EQUITY MARKETS, WORLD MARKET, WORLD MARKET INTEGRATION, YIELD CURVE, YIELD SPREADS,
Online Access:	http://documents.worldbank.org/curated/en/2014/03/19303789/tinker-taper-qe-bye-effect-quantitative-easing-financial-flows-developing-countries https://hdl.handle.net/10986/17733
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