Capital flows and asset prices: empirical evidence from emerging and developing economies

Hiroyuki Taguchi (), Pravakar Sahoo and Geethanjali Nataraj ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper aims at providing empirical evidence on the effect of capital flows on asset prices including its channel under different currency regimes, focusing on ten emerging and developing economies in the world with data availability and stationarity for the 2000s, by a generalized impulse response analysis under a vector auto-regression model. The main findings are as follows. Portfolio capital inflows have a significantly positive effect on stock prices in all sample economies except two transition economies, which implies that the direct channel from capital inflows into stock markets is at least working in sample economies regardless of their currency regimes; The indirect channel –the channel in which capital inflows raise share prices through an increase in domestic monetary base– works differently under different currency regimes: it works in the economies with peg regime through their intervention to foreign exchange markets, whereas the indirect channel seems to be shut down in those with floating regime probably by sterilizing the intervention.

Keywords: capital flows; asset prices; emerging and developing Economies (search for similar items in EconPapers)
JEL-codes: E51 E52 F32 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-ifn and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Published in International Economics 141 (2015): pp. 1-14

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Journal Article: Capital flows and asset prices: Empirical evidence from emerging and developing economies (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:63745

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