Institutional Affiliation: NERA
NBER Working Papers and Publications
|June 1995||Liberalized Portfolio Capital Inflows in Emerging Capital Markets: Sterilization, Expectations, and the Incompleteness of Interest Rate Convergence|
with Jeffrey A. Frankel: w5156
The paper examines interest rates in nine Latin American and East Asian countries during the period 1987-1994. The goal is to discover why interest rates have remained high, failing to converge to U.S. levels, despite capital market liberalization and a resurgence of portfolio capital inflows during the second half of this sample period. Related questions are whether portfolio capital flows are strong enough to equalize expected returns between these 'emerging markets' and the U.S., and whether there is any scope left for the authorities to sterilize inflows. The conclusion of the study is that the largest single component of the gap in interest rates is expectations of depreciation of the local currencies against the dollar. Key to the analysis is the use of survey data on exchange ra...
Published: International Journal of Finance and Economics, December 1995, Volume 1, no . 1, pp. 1-24