Abstract
The volatility of cross-border capital flow (CF) has become higher in the last two decades. We use a sample of advanced and emerging market economies in the last two decades, with a focus on portfolio fund flows (equities and bonds). We find that the impact of portfolio CF volatility on exchange rate (FX) volatility is diminished in the short-term if specific economic fundamentals of the country are stronger, especially when these fundamentals pass certain threshold levels. The finding is controlled for different exchange rate regimes and the level of capital control. We further introduce an intuitive FX resilience measure that can be used to assess the stability of exchange rates in the context of heightened CF volatility. The decomposed FX resilience measure shows that the major contributing fundamentals to FX resilience are from the finance channel, including short-term interest rate, fiscal surplus, and financial development.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
