Inbound portfolio bond investments and domestic monetary policy effect in emerging countries

Abstract

ABSTRACT In emerging markets, regulating foreigners’ selling of a country’s local bonds has the potential to discourage them from investing in these bonds and to help the country’s domestic short-term interest rates affect the size of their investment flows. This finding is based upon an analysis of the determinants of foreigners’ portfolio bond investments in 20 emerging countries over the period 2001–2015. This analysis also supports a global financial cycle hypothesis stressing the dominant role played by global factors in international capital flows and examines one policy implication of that: a dilemma between international capital mobility and independent monetary policy effect.