IMF Working Papers

Nonresident Capital Flows and Volatility: Evidence from Malaysia’s Local Currency Bond Market

By David A. Grigorian

January 25, 2019

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David A. Grigorian Nonresident Capital Flows and Volatility: Evidence from Malaysia’s Local Currency Bond Market, (USA: International Monetary Fund, 2019) accessed November 8, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Malaysia’s local currency debt market is one of the most liquid public debt markets in the world. In recent years, the growing share of nonresident holders of debt has been a source of concern for policymakers as a reason behind exchange rate volatility. The paper provides an overview of the recent developments in the conventional debt market. It builds an empirical two-stage model to estimate the main drivers of debt capital flows to Malaysia. Finally, it uses a GARCH model to test the hypothesis that nonresident flows are behind the observed exchange rate volatility. The results suggest that the public debt market in Malaysia responds adequately to both pull and push factors and find no firm evidence that nonresident flows cause volatility in the onshore foreign exchange market.

Subject: Bond yields, Currency markets, Emerging and frontier financial markets, Exchange rates, Financial institutions, Financial markets, Foreign exchange, Global financial crisis of 2008-2009, Securities markets

Keywords: Bond market, Bond yields, Currency markets, Debt market, Debt market flow, Debt markets, Emerging and frontier financial markets, Exchange rates, FX market measure, Global, Global bond market integration, Liquidity condition, Malaysia, MGS market, Nonresident investors, Securities markets, Volatility, WP

Publication Details

  • Pages:

    19

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2019/023

  • Stock No:

    WPIEA2019023

  • ISBN:

    9781484393161

  • ISSN:

    1018-5941

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