Abstract
We analyze spillovers of financial conditions on international portfolio bond flows. We document significant US financial conditions spillovers using data from developed and emerging countries. To disentangle the nature of spillovers, we rely on panel spatial autoregressive models, and third market competition on global trade flows to capture direct and indirect effects. We find that 30% of US spillovers are due to indirect effects in mutual funds with a regional-target investment focus. • We analyze global spillovers of US and domestic financial conditions on portfolio bonds. • We disentangle the nature of spillover into direct and indirect components. • We find a heterogeneous spillover effect based on the investment scope of funds. • US financial conditions play a significant role in international bond flows compared to domestic financial conditions. • A 30% of US financial spillovers are due to indirect effects in funds investing regionally.
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