{
  "title": "Fed Tightening May Squeeze Portfolio Flows to Emerging Markets",
  "publication": "IMF Blog, December 14, 2017",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2017/12/14/fed-tightening-may-squeeze-portfolio-flows-to-emerging-markets",
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  "summary": "Author: Robin Koepke",
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    {
      "heading": "Overview and context",
      "content": "- Author: Robin Koepke\n- Publication date: December 14, 2017\n- Topic: Impact of US Federal Reserve monetary policy normalization on portfolio flows to emerging markets (foreign purchases of emerging market stocks and bonds).\n- Source analysis basis: IMF’s new model and the IMF’s latest Global Financial Stability Report; econometric model adapted from a 2014 paper."
    },
    {
      "heading": "Key findings from the IMF model",
      "content": "- Normalization—raising the policy interest rate and shrinking the balance sheet—will likely reduce portfolio inflows by about $70 billion over the next two years, compared with average annual inflows of $240 billion since 2010.\n- Shrinkage in the Fed’s $4.5 trillion balance sheet, which began in October, accounts for most of the impact on portfolio flows.\n- Since 2010, about $260 billion in portfolio inflows resulted from the “push” of unconventional Fed monetary policy rather than domestic “pull” factors.\n  - Of that $260 billion, $170 billion is attributed to the Fed’s large scale asset purchases as investors rebalanced toward higher-yielding emerging market assets.\n  - Downward shifts in market expectations for future Fed policy rates accounted for $90 billion.\n- Model projections:\n  - Reduction in the size of the Fed’s balance sheet will cut flows by $55 billion over the next two years.\n  - Additional rise in short-term interest rates in line with IMF forecasts could reduce flows by an additional $15 billion.\n  - Assumes the US policy rate will rise to just under 3 percent by the end of 2019, and that tightening will be orderly and will not take a toll on emerging market growth."
    },
    {
      "heading": "Risks and historical precedent",
      "content": "- Even limited withdrawals of foreign capital, if concentrated over a short period, could create significant stress for emerging market borrowers.\n- Example: During the “taper tantrum” in 2013, when markets interpreted Fed communication as signaling an accelerated reduction in asset purchases, some $40 billion flowed out of emerging markets over a period of seven weeks as exchange rates depreciated sharply and asset prices declined."
    },
    {
      "heading": "Policy implications and recommendations",
      "content": "- A gradual pace of normalization is crucial to allow emerging markets to adjust to reduced inflows of funds.\n- The Fed and other advanced-economy central banks should:\n  - Change policy gradually.\n  - Provide well-communicated plans on unwinding their holdings of securities.\n  - Provide guidance on any potential changes to their frameworks to ensure a smooth normalization process.\n\nSource: IMF blog post \"Fed Tightening May Squeeze Portfolio Flows to Emerging Markets\" by Robin Koepke, December 14, 2017.\n\n---\n\n Content in this bundle\n\n- 美联储收紧政策可能导致新兴市场的证券投资流入减少, IMF博客; 2017年12月14日\n  - 美联储收紧政策可能导致新兴市场的证券投资流入减少, IMF博客; 2017年12月14日 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - 美联储收紧政策可能导致新兴市场的证券投资流入减少, IMF博客; 2017年12月14日 (PDF){rel=\"external\" type=\"application/pdf\"}\n- 連邦準備制度による引き締め措置の結果、新興市場国への証券投資が減少する可能性がある; ロビン・クプケ IMF ブログ 2017年12月14日掲載\n  - 連邦準備制度による引き締め措置の結果、新興市場国への証券投資が減少する可能性がある; ロビン・クプケ IMF ブログ 2017年12月14日掲載 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - 連邦準備制度による引き締め措置の結果、新興市場国への証券投資が減少する可能性がある; ロビン・クプケ IMF ブログ 2017年12月14日掲載 (PDF){rel=\"external\" type=\"application/pdf\"}\n- 121417r\n  - 121417r (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - 121417r (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- https://www.imf.org/wp-content/uploads/2017/12/BLOG-1024x600-Singapore-derivatives-traders-Caro-Rupert-Oberhaeuser-Newscom-carophotos361882.jpg\n- https://www.imf.org/wp-content/uploads/2017/12/FED-Blog-Chart-1.jpg\n- Global Financial Stability Report\n- https://www.imf.org/wp-content/uploads/2017/12/FED-Blog-Chart-2.jpg\n\nSource: https://www.imf.org/en/blogs/articles/2017/12/14/fed-tightening-may-squeeze-portfolio-flows-to-emerging-markets"
    }
  ],
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    "Authors: Robin Koepke",
    "Published: December 14, 2017",
    "Author: Robin Koepke",
    "Publication date: December 14, 2017",
    "Topic: Impact of US Federal Reserve monetary policy normalization on portfolio flows to emerging markets (foreign purchases of emerging market stocks and bonds).",
    "Source analysis basis: IMF’s new model and the IMF’s latest Global Financial Stability Report; econometric model adapted from a 2014 paper.",
    "Normalization—raising the policy interest rate and shrinking the balance sheet—will likely reduce portfolio inflows by about $70 billion over the next two years, compared with average annual inflows of $240 billion since 2010.",
    "Shrinkage in the Fed’s $4.5 trillion balance sheet, which began in October, accounts for most of the impact on portfolio flows.",
    "Since 2010, about $260 billion in portfolio inflows resulted from the “push” of unconventional Fed monetary policy rather than domestic “pull” factors.",
    "Model projections:",
    "Even limited withdrawals of foreign capital, if concentrated over a short period, could create significant stress for emerging market borrowers.",
    "Example: During the “taper tantrum” in 2013, when markets interpreted Fed communication as signaling an accelerated reduction in asset purchases, some $40 billion flowed out of emerging markets over a period of seven weeks as exchange rates depreciated sharply and asset prices declined.",
    "A gradual pace of normalization is crucial to allow emerging markets to adjust to reduced inflows of funds.",
    "The Fed and other advanced-economy central banks should:",
    "**美联储收紧政策可能导致新兴市场的证券投资流入减少, IMF博客; 2017年12月14日**",
    "**連邦準備制度による引き締め措置の結果、新興市場国への証券投資が減少する可能性がある; ロビン・クプケ IMF ブログ 2017年12月14日掲載**",
    "**121417r**",
    "[https://www.imf.org/wp-content/uploads/2017/12/BLOG-1024x600-Singapore-derivatives-traders-Caro-Rupert-Oberhaeuser-Newscom-carophotos361882.jpg](https://www.imf.org/wp-content/uploads/2017/12/BLOG-1024x600-Singapore-derivatives-traders-Caro-Rupert-Oberhaeuser-Newscom-carophotos361882.jpg)",
    "[https://www.imf.org/wp-content/uploads/2017/12/FED-Blog-Chart-1.jpg](https://www.imf.org/wp-content/uploads/2017/12/FED-Blog-Chart-1.jpg)",
    "[Global Financial Stability Report](https://www.imf.org/en/Publications/GFSR/Issues/2017/09/27/global-financial-stability-report-october-2017)",
    "[https://www.imf.org/wp-content/uploads/2017/12/FED-Blog-Chart-2.jpg](https://www.imf.org/wp-content/uploads/2017/12/FED-Blog-Chart-2.jpg)"
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