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Capital flows have been the subject of acute policy concern since the Brady plan launched the emerging markets bond asset class. Their massive volume, coupled with their volatile and procyclical nature, is often associated with a variety of financial and real risks, which have changed over time. While emerging market crises in the 1990s and 2000s were inherently driven by financial dollarization and balance sheet effects, financial dollarization has receded in emerging markets and the focus has shifted to the macroeconomic effects of cross-market flows, including extended periods of exchange rate misalignment and the amplification of business cycles in a context of large and persistent terms-of-trade shocks and global liquidity swings. These conditions make it difficult to evaluate capital flows based on data mostly from the 1990s and early 2000s, and recent empirical literature is reviewed that revisits the issue with fresh data and an open mind.
Deeper financial integration is expected to enable low-saving countries to increase domestic investment but also to increase crisis risks by facilitating the accumulation of risky foreign liabilities. This paper explores the connections between financial integration, investment and crisis risk to assess this tradeoff. It confirms expectations but also finds that the accumulation of safe foreign as ... (View publication)
This paper shows, using probit analysis, that low national savings increase the risk of macroeconomic crisis. Foreign savings are a poor substitute of national savings not only for domestic investment (Feldstein-Horioka result), but also for stability. It is found that deeper financial integration does not cure low investment and can improve the situation only to the extent that the risks of t ... (View publication)
This study explores the determinants of corporate bond spreads in emerging market economies. Using a largely unexploited dataset, the paper finds that corporate bond spreads are determined by firm-specific variables, bond characteristics, macroeconomic conditions, sovereign risk, and global factors. A variance decomposition analysis shows that firm-level characteristics account for the larger shar ... (View publication)
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