Non-bank Financial Intermediation and Capital Flows: Evidence from Emerging Market Economies

AGUIRRE, HORACIO; PÉREZ ARTICA, RODRIGO

Ciudad de México

Conferencia; XXVII Meeting of the Central Bank Researchers Network; 2022

Central Bank Researchers Network

We look at the interplay of non-bank financial intermediation (NBFI) and capital flows inemerging market economies (EMEs). We examine whether gross capital flows to twenty-four EMEs,including seven Latin American economies, are related to foreign bond holdings of non-bankfinancial intermediaries, over and above local and global factors. We estimate panel data modelsthat account for cross-country correlation, using quarterly data from the dataset by Arslanalp andTsuda (2014) in the 2004-2021 period. We discriminate flows by sectors (total, government,corporate and banking), include time and country fixed effects, and employ several definitions ofour variable of interest: either as a categorical variable, that captures those countries with thelargest share of foreign nonbank investors, or as a direct measure of their participation. [We alsocarry out event studies around the occurrence of the global financial crisis (2008) and the covid-19crisis (2020).] Our preliminary results suggest that during the post-global financial crisis period,foreign NBFI magnifies the impact of global factors on capital inflows, while they weaken the pull oflocal factors.