Do managed exchange rates and monetary sterilization encourage capital inflows?
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(Published version)
Date
2020
Authors
Arya, V.
Cavoli, T.
Onur, I.
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Caraiani, P.
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Journal article
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PLoS ONE, 2020; 15(8):1-11
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Abstract
Economies with exchange rate pegs generally attract higher capital inflows either through lower transaction costs of trade and finance, or by encouraging investors to exploit any interest differentials, or where foreign exchange (FX) interventions are sterilized, any previous interest differentials are preserved. This paper examines these relationships using FDI, portfolio and bank inflows for 28 emerging market economies. We find that greater fixity of the exchange rate and sterilized intervention can potentially encourage capital inflows, and that the effect is magnified when combined. Further, we find that the effect differs by region, and it is larger for higher inflows.
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Data source: Supporting information, https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0238205#sec006
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Copyright 2020 Arya et al. This is an open access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited. (https://creativecommons.org/licenses/by/4.0/)