Time varying determinants of bond flows to emerging markets

Abstract

This paper investigates the time varying nature of the determinants of bondflows with a focus on theglobalŞnancial crisis period. We estimate a time varying regression model using Bayesian estimationmethods, where the posterior distribution is approximated by Gibbs sampling algorithm. OurŞndingssuggest that the interest rate differential is the most signiŞcant pull factor of portfolio bond flows, alongwith the inflation rate, while the growth rate does not play a signiŞcant role. Among the push factors,global liquidity is the most important driver of bondflows. It matters the most, when unconventionalmonetary easing policies wereŞrst announced; and its importance as a determinant of portfolio bondflows decreases over time, starting with the Eurozone crisis, and diminishes with the tapering talk.Global risk appetite and the risk perception towards the emerging countries also have relatively smalland stable signiŞcant effects on bond flows.