Liberalized Portfolio Capital Inflows in Emerging Capital Markets: Sterilization, Expectations, and the Incompleteness of Interest Rate Convergence / Jeffrey A. Frankel, Chudozie Okongwu.

Format:

Book

Author/Creator:

Frankel, Jeffrey A., author.

Contributor:

National Bureau of Economic Research.

Okongwu, Chudozie.

Series:

Working Paper Series (National Bureau of Economic Research) no. w5156.

NBER working paper series no. w5156

Language:

English

Subjects (All):

International finance.

Physical Description:

1 online resource: illustrations (black and white).

Other Title:

Sterilization, Expectations, and the Incompleteness of Interest Rate Convergence

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1995.

Summary:

The paper examines interest rates in nine Latin American and East Asian countries during the period 1987-1994. The goal is to discover why interest rates have remained high, failing to converge to U.S. levels, despite capital market liberalization and a resurgence of portfolio capital inflows during the second half of this sample period. Related questions are whether portfolio capital flows are strong enough to equalize expected returns between these 'emerging markets' and the U.S., and whether there is any scope left for the authorities to sterilize inflows. The conclusion of the study is that the largest single component of the gap in interest rates is expectations of depreciation of the local currencies against the dollar. Key to the analysis is the use of survey data on exchange rate forecasts by market participants. Indicative of integrated financial markets, we also find a big effect of U.S. interest rates on local interest rates and a highly significant degree of capital flow offset to monetary policy.

Notes:

Print version record

June 1995.