Exchange Rate Regimes as Thresholds : The Main Determinants of Capital Inflows in Emerging Market Economies

We investigate whether the impacts of the main push (global financial conditions, GFC) and pull (growth) factors on capital inflows are invariant to endogenously estimated thresholds for exchange rate regimes (ERRs) in emerging economies. The impact of GFC is higher under more flexible ERRs for aggregate capital and portfolio inflows. FDI inflows are determined by growth. The sensitivity of aggregate and other investment inflows to growth is higher under more rigid ERRs. Our results suggest that managed ERRs encourage capital inflows by allowing countries to import monetary policy credibility of the center country and to provide an exchange rate guarantee