Capital mobility and the offset coefficient: Monetary policy in the face of volatile capital flows to the emerging markets.

摘要

This dissertation examines the effect of both global and country-specific factors on local expected rates of return in, and portfolio capital flows to, a cross section of emerging market countries in Latin America and Asia. In particular, it tests the extent to which differences between expected returns among these countries, and between these countries and the U.S., are the result of barriers to capital mobility and imperfect asset substitutability. It also examines the reaction of portfolio capital flows to differences in local expected returns. A central question is whether policymakers, given an exchange rate target, have any scope for independent monetary policy in a world of increasing financial integration. The study finds that, though a significant offset to monetary policy does exist, it is not complete. In fact, evidence is found that capital controls are at least partially effective and that assets are imperfect substitutes, providing central banks with the ability to sterilize reserve flows in the short run. Evidence is also found that certain country-specific factors may affect the magnitude of the offset coefficient, thus affecting the extent to which the monetary authority is able to temporarily pursue an independent monetary policy. However, the finding that capital is significantly mobile, as evidenced by the offset to monetary policy, coupled with the finding that U.S. interest rates have a large effect on local interest rates and on portfolio capital flows, suggest that, in the long run, the scope for independent monetary policy in the face of an exchange rate target is limited.