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Autoren: 
Caporale, Guglielmo Maria
Ali, Faek Menla
Spagnolo, Fabio
Spagnolo, Nicola
Datum: 
2015
Schriftenreihe/Nr.: 
CESifo Working Paper No. 5615
Zusammenfassung: 
This paper investigates the effects of equity and bond portfolio in.ows on exchange rate volatility, using monthly bilateral data for the US vis-a-vis eight Asian developing and emerging countries (India, Indonesia, South Korea, Pakistan, Hong Kong, Thailand, the Philippines, and Taiwan) over the period 1993:01-2012:11, and estimating a time-varying transition probability Markov-switching model. We find that net equity (bond) inflows drive the exchange rate to a high (low) volatility state. In particular, net bond inflows increase the probability of remaining in the low volatility state in the case of Pakistan, Thailand, and the Philippines, whilst they increase the probability of staying in the high volatility state in the case of Indonesia. Finally, net equity inflows from India, Indonesia, South Korea, Hong Kong, and Taiwan towards the US also increase the probability of staying in the high volatility state. These findings can be plausibly interpreted in terms of the “return-chasing” hypothesis and suggest that credit controls on portfolio flows could be an effective tool to stabilise the foreign exchange market.
Schlagwörter: 
bond flows
equity flows
exchange rates
regime switching
JEL: 
F31
F32
G15
Dokumentart: 
Working Paper

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