The Role of Capital Flows in the International Transmission of US Monetary Policy: The Case of Turkey

Öz

This article aims to examine the impacts of US monetary policy (MP) changes on the Turkish economy. A Structural Vector Autoregressive (SVAR) model is estimated for the period 2002:01–2017:12, during which a flexible exchange rate regime was adopted in the Turkish economy. According to the impulse-response analysis, the Turkish interest rate responds positively and significantly to the US Effective Federal Funds Rate (EFFR). This result shows that the Central Bank of the Republic of Turkey’s (CBRT) MP follows the FED's MP, consistent with the dilemma hypothesis of Rey (2015). The analysis also demonstrates that both the EFFR and the VIX have a negative impact on net total capital inflows to the Turkish economy. The impulse-responses for the three components of net capital inflows indicate important conclusions. Firstly, neither EFFR nor VIX has a significant impact on Net Foreign Direct Investment (NFDI) inflows. Secondly, Net Portfolio Investments (NPI) respond significantly to the VIX but not to the EFFR. Thirdly, Net Other Investments (NOI) respond significantly to the EFFR but not to the VIX. These findings indicate that the NOI component plays a direct and major role in the emergence of the US MP’s spillover effects on the Turkish MP.

Anahtar Kelimeler

• US Monetary Policy Spillovers
• Capital Flows
• Global Risk
• International Risk-taking

ABD Para Politikasının Uluslararası Aktarımında Sermaye Akımlarının Rolü: Türkiye Örneği

Öz

Bu makale, ABD para politikasındaki değişikliklerin Türkiye ekonomisi üzerindeki etkilerini incelemeyi amaçlamaktadır. Türkiye ekonomisinde esnek döviz kuru rejiminin benimsendiği 2002:01–2017:12 dönemi için bir Yapısal Vektör Otoregresif (SVAR) model tahmin edilmektedir. Etki-tepki analizine göre, Türkiye faiz oranı, ABD Efektif Federal Fon Oranı'na (EFFR) pozitif ve anlamlı şekilde tepki vermektedir. Bu sonuç, Rey’in (2015) ikili açmaz hipoteziyle tutarlı biçimde, Türkiye Cumhuriyet Merkez Bankası'nın (TCMB) para politikasının FED'in para politikasını takip ettiğini göstermektedir. Analiz aynı zamanda hem EFFR'nin hem de VIX'in Türkiye ekonomisine yönelik net toplam sermaye girişleri üzerinde negatif etkiye sahip olduğunu kanıtlamaktadır. Net sermaye girişlerinin üç bileşeni için elde edilen etki-tepkiler, önemli sonuçlara işaret etmektedir. İlk olarak ne EFFR’nin ne de VIX'in Net Yabancı Doğrudan Yatırım (NFDI) girişleri üzerinde anlamlı bir etkisi bulunmamaktadır. İkinci olarak, Net Portföy Yatırımlarının (NPI) VIX'e tepkisi anlamlı iken, EFFR'ye tepkisi anlamlı değildir. Üçüncüsü, Net Diğer Yatırımların (NOI) EFFR'ye tepkisi anlamlı iken, VIX'e tepkisi anlamlı değildir. Bu bulgular, ABD para politikasının Türkiye para politikası üzerindeki yayılma etkilerinin ortaya çıkmasında, NOI bileşeninin doğrudan ve önemli bir rol oynadığını göstermektedir.

Anahtar Kelimeler

• ABD Para Politikası Yayılmaları
• Sermaye Akımları
• Küresel Risk
• Uluslararası Risk-alma

Kaynakça

1. Ahmed, S. and Zlate, A. (2014). Capital flows to emerging market economies: A brave new world? Journal of International Money and Finance, 48, 221-248. https://doi.org/10.1016/j.jimonfin.2014.05.015
2. Aizenman, J., Chinn, M.D. and Ito, H. (2016). Monetary policy spillovers and the trilemma in the new normal: Periphery country sensitivity to core country conditions. Journal of International Money and Finance, 68, 298-330. https://doi.org/10.1016/j.jimonfin.2016.02.008
3. Akinci, O. and Queralto, A. (2018). Balance sheets, exchange rates, and international monetary spillovers (FED Staff Report No. 849). Retrieved from https://www.inet.econ.cam.ac.uk/events-files/2019/NEERA-march19/Akinci_Slides_March2019.pdf
4. Ananchotikul, N. and Zhang, L. (2014). Portfolio flows, global risk aversion and asset prices in emerging markets (IMF Working Paper No. 14/156). Retrieved from https://www.elibrary.imf.org/downloadpdf/journals/001/2014/156/article-A000-en.pdf
5. Anaya, P., Hachula, M. and Offermanns, C.J. (2017). Spillovers of US unconventional monetary policy to emerging markets: The role of capital flows. Journal of International Money and Finance, 73, 275-295. https://doi.org/10.1016/j.jimonfin.2017.02.008
6. Avdjiev, S., Hardy, B., Kalemli-Ozcan, Ş. and Servén, L. (2018). Gross capital flows by banks, corporates and sovereigns (NBER Working Paper Series No. 23116). Retrieved from https://doi.org/10.1093/jeea/jvac038
7. Baek, I.-M. (2006). Portfolio investment flows to Asia and Latin America: pull, push or market sentiment? Journal of Asian Economics, 17(2), 363–373. https://doi.org/10.1016/j.asieco.2006.02.007
8. Bernoth, K. and Herwartz, H. (2021). Exchange rates, foreign currency exposure and sovereign risk. Journal of International Money and Finance, 117, 102454. https://doi.org/10.1016/j.jimonfin.2021.102454

9. Bekaert, G., Hoerova, M. and Duca, M.L. (2013). Risk, uncertainty and monetary policy. Journal of Monetary Economics, 60(7), 771-788. https://doi.org/10.1016/j.jmoneco.2013.06.003
10. Bekaert, G. and Mehl, A. (2019). On the global financial market integration “swoosh” and the trilemma. Journal of International Money and Finance, 94, 227-245. https://doi.org/10.1016/j.jimonfin.2019.02.001
11. Borio, C. and H. Zhu, (2012). Capital regulation, risktaking and monetary policy: A missing link in the transmission mechanism? Journal of Financial Stability, 8(4), 236–51. https://doi.org/10.1016/j.jfs.2011.12.003
12. Bowman, D., Londono, J.M. and Sapriza, H. (2015). U.S. unconventional monetary policy and transmission to emerging market economies. Journal of International Money and Finance, 55, 27-59. http://dx.doi.org/10.1016/j.jimonfin.2015.02.016
13. Broner, F., Didier, T., Erce, A. and Schmukler, S.L. (2013). Gross capital flows: Dynamics and crises. Journal of Monetary Economics, 60(1), 113–133. https://doi.org/10.1016/j.jmoneco.2012.12.004
14. Bruno, V. and Shin, H.S. (2015a). Cross-border banking and global liquidity. Review of Economic Studies, 82(2), 535–564. https://doi.org/10.1093/restud/rdu042
15. Bruno, V. and Shin, H.S. (2015b). Capital flows and the risk-taking channel of monetary policy. Journal of Monetary Economics, 71(C), 119–132. https://doi.org/10.1016/j.jmoneco.2014.11.011
16. Buono, I., Corneli, F. and Stefano, E.D. (2020). Capital inflows to emerging countries and their sensitivity to the global financial cycle (Economic Working Papers No. 1262). https://doi.org/10.1111/infi.12442
17. Calvo, G.A., Leiderman, L. and Reinhart, C.M. (1993). Capital inflows and real exchange rate appreciation in Latin America: The role of external factors (IMF Staff Papers No. 40). https://doi.org/10.2307/3867379
18. Calvo, G.A., Leiderman, L. and Reinhart, C.M. (1996). Inflows of capital to developing countries in the 1990s. Journal of Economic Perspectives, 10, 123–139. doi:10.1257/jep.10.2.123
19. Calvo, G.A. and Reinhart, C.M. (2002). Fear of floating. The Quarterly Journal of Economics, 117(2), 379–408. https://doi.org/10.1162/003355302753650274
20. Cerutti, E., Claessens, S. and Puy, D. (2019a). Push factors and capital flows to emerging markets: Why knowing your lender matters more than fundamentals. Journal of International Economics, 119, 133–149. https://doi.org/10.1016/j.jinteco.2019.04.006
21. Cerutti, M.E., Claessens, M.S. and Ratnovski, M.L. (2014). Global liquidity and drivers of cross-border bank flows (IMF Working Paper No. 14/69). Retrieved from https://policycommons.net/artifacts/436666/global-liquidity-and-drivers-of-cross-border-bank-flows/1409602/
22. Cerutti, E., Claessens, S. and Rose, A.K. (2019b). How important is the global financial cycle? Evidence from capital flows. IMF Economic Review, 67, 24–60. https://doi.org/10.3386/w23699
23. CGFS. (2021). Changing patterns of capital flows (CGFS Papers No. 66). Retrieved from https://www.bis.org/publ/cgfs66.pdf
24. Cheng, R. and Rajan, R.S. (2020). Monetary trilemma, dilemma, or something in between? International Finance, 23(2), 257-276. https://doi.org/10.1111/infi.12363
25. Chuhan, P., Claessens, S. and Mamingi, N. (1998). Equity and bond flows to Latin America and Asia: The role of global and country factors. Journal of Development Economics, 55(2), 439–463. https://doi.org/10.1016/S0304-3878(98)00044-3
26. Converse, N., Levy-Yeyati, E. and Williams, T. (2020). How ETFs amplify the global financial cycle in emerging markets (International Finance Discussion Papers No. 1268). https://doi.org/10.1093/rfs/hhad014
27. Dağlaroğlu, T., Demirel, B. and Mahmud, S.F. (2018). Monetary policy implications of short-term capital flows in Turkey. Empirica, 45, 747–763. https://doi.org/10.1007/s10663-017-9388-0
28. Dahlhaus, T. and Vasishtha, G. (2014). The impact of US monetary policy normalization on capital flows to emerging-market economies (Bank of Canada Working Paper No. 14–53). https://doi.org/10.34989/swp-2014-53
29. Dedola, L., Rivolta, G. and Stracca, L. (2017). If the FED sneezes, who catches a cold? Journal of International Economics, 108, S23-S41. https://doi.org/10.1016/j.jinteco.2017.01.002
30. Dées, S. and Galesi, A. (2021). The global financial cycle and US monetary policy in an interconnected world. Journal of International Money and Finance, 115, 102395. https://doi.org/10.1016/j.jimonfin.2021.102395
31. Degasperi, R., Hong, S.S. and Ricco, G. (2023). The global transmission of U.S. monetary policy (Paris School of Economics Working Paper No. 2023-06). https://doi.org/10.71587/x55xs629
32. Di Giovanni, J., Kalemli-Ozcan, Ş., Ulu, M.F. and Baskaya, Y.S. (2022). International spillovers and local credit cycles. The Review of Economic Studies, 89(2), 733–773. https://doi.org/10.1093/restud/rdab044
33. Edwards, S. (2015). Monetary policy independence under flexible exchange rates: An illusion? (NBER Working Paper No. 20893). https://doi.org/10.1111/twec.12262
34. Eller, M., Huber, F. and Schuberth, H. (2020). How important are global factors for understanding the dynamics of international capital flows? Journal of International Money and Finance, 109, 102221. https://doi.org/10.1016/j.jimonfin.2020.102221
35. Epstein, B., Shapiro, A. F. and Gómez, A. G. (2019). Global financial risk, aggregate fluctuations, and unemployment dynamics. Journal of International Economics, 118, 351-418. https://doi.org/10.1016/j.jimonfin.2020.102221
36. Eterovic, D., Cassandra Sweet, C. and Eterovic, N. (2022). Asymmetric spillovers in emerging market monetary policy. International Review of Economics and Finance, 82, 650–662. https://doi.org/10.1016/j.iref.2022.08.005
37. Fernandez-Arias, E. (1996). The new wave of private capital inflows: Push or pull? Journal of Development Economics, 48(2), 389–418. https://doi.org/10.1016/0304-3878(95)00041-0
38. Feroli, M., Kashyap, A.K., Schoenholtz, K.L. and Shin, H.S. (2014). Market tantrums and monetary policy (Chicago Booth Research Paper No. 14). http://dx.doi.org/10.2139/ssrn.2409092
39. Ferrero, A., Habib, M.M., Stracca, L. and Venditti, F. (2022). Leaning against the global financial cycle (ECB Working Paper Series No. 2763). http://dx.doi.org/10.2139/ssrn.4310226
40. Ferrucci, G., Herzberg, V., Soussa, F. and Taylor, A. (2004). Understanding capital flows to emerging market economies (Bank of England Financial Stability Review No. 16). Retrieved from https://www.bankofengland.co.uk/-/media/boe/files/financial-stability-report/2004/june-2004.pdf
41. Forbes, K.J. and Warnock, F.E. (2012). Capital flow waves: Surges, stops, flight, and retrenchment. Journal of International Economics, 88 (2), 235-251. https://doi.org/10.1016/j.jinteco.2012.03.006
42. Fratzscher, M. (2012). Capital flows, push versus pull factors and the global financial crisis. Journal of International Economics, 88, 341–356. https://doi.org/10.1016/j.jinteco.2012.05.003
43. Fratzscher, M., Lo Duca, M. and Straub, R. (2016). ECB unconventional monetary policy: Market impact and international spillovers. IMF Economic Review, 64, 36-74. https://doi.org/10.1057/imfer.2016.5
44. Fratzscher, M., Lo Duca, M. and Straub, R. (2018). On the international spillovers of US quantitative easing. The Economic Journal, 128(608), 330-377. https://doi.org/10.1111/ecoj.12435
45. Gajewski, K., Jara, A., Kang, Y., Mok, J., Moreno, D. and Serwa, D. (2019). International spillovers of monetary policy: Lessons from Chile, Korea, and Poland. Journal of International Money and Finance, 90, 175–186. https://doi.org/10.1016/j.jimonfin.2018.08.009
46. Ganelli, G. and Tawk, N. (2019). Spillovers from Japan's unconventional monetary policy: A global VAR approach. Economic Modelling, 77, 147–163. https://doi.org/10.1016/j.econmod.2017.10.020
47. Georgiadis, G. and Jarociński, M. (2023). Global spillovers from multi-dimensional US monetary policy (ECB Working Paper No. 2881). Retrieved from http://dx.doi.org/10.2139/ssrn.4655582
48. Georgiadis, G. and Mehl, A. (2015). Trilemma, not dilemma: Financial globalisation and monetary policy effectiveness (Globalization and Monetary Policy Institute Working Paper No. 222). http://dx.doi.org/10.24149/gwp222
49. Georgiadis, G. and Zhu, F. (2021). Foreign-currency exposures and the financial channel of exchange rates: Eroding monetary policy autonomy in small open economies? Journal of International Money and Finance, 110, 102265. https://doi.org/10.1016/j.jimonfin.2020.102265
50. Ghosh, A.R., Qureshi, M.S., Kim, J.I. and Zalduendo, J. (2014). Surges. Journal of International Economics, 92(2), 266–285. https://doi.org/10.1016/j.jinteco.2013.12.007
51. Ghosh, M.A.R., Qureshi, M. and Sugawara, N. (2014). Regulating capital flows at both ends: Does it work? Retrieved from https://abfer.org/media/abfer-events-2017/specialty-conference/1-4sc201701-008-regulating_capital_flows_at_both_ends_does_it_work-9jan2017.pdf
52. Gilchrist, S., Wei, B., Yue, V.Z. and Zakrajšek, E. (2022). Sovereign risk and financial risk. Journal of International Economics, 136, 103603. https://doi.org/10.1016/j.jinteco.2022.103603
53. Gilchrist, S., Yue, V.Z. and Zakrajsek, E. (2019). US monetary policy and international bond markets (NBER Working Paper No. 26012). https://doi.org/10.1111/jmcb.12667
54. Goldberg, L. (2013). Banking globalization, transmission, and monetary policy autonomy. Sveriges Riksbank Economic Review, 3, 161–93. http://dx.doi.org/10.2139/ssrn.2335460
55. Gourinchas, P.O. and Obstfeld, M. (2012). Stories of the twentieth century for the twenty-first. American Economic Journal: Macroeconomics, 4(1), 226–265. https://doi.org/10.1257/mac.4.1.226
56. Gülşen, E. and Özmen, E. (2020). Monetary policy trilemma, inflation targeting and global financial crisis. International Journal of Finance and Economics, 25(2), 286-296. https://doi.org/10.1002/ijfe.1752
57. Habib, M.M. and Venditti, F. (2019). The global capital flows cycle: Structural drivers and transmission channels (ECB Working Paper Series No. 2280). http://dx.doi.org/10.2139/ssrn.3389245
58. Han, X. and Wei, S. J. (2018). International transmissions of monetary shocks: Between a trilemma and a dilemma. Journal of International Economics, 110, 205-219. https://doi.org/10.1016/j.jinteco.2017.11.005
59. Herrmann, S. and Mihaljek, D. (2013). The determinants of cross-border bank flows to emerging markets. Economics of Transition, 21(3), 479–508. https://doi.org/10.1111/ecot.12019
60. Herwartz, H. and Roestel, J. (2017). Mundell’s trilemma: Policy trade-offs within the middle ground. Journal of International Money and Finance, 75, 1-13. https://doi.org/10.1016/j.jimonfin.2017.04.002
61. Hofmann, B., Shim, I. and Shin, H.S. (2020). Bond risk premia and the exchange rate. Journal of Money, Credit and Banking, 52(S2), 497-520. https://doi.org/10.1111/jmcb.12760
62. Hofmann, B. and Takáts, E. (2015). International monetary spillovers (BIS Quarterly Review). Retrieved from https://www.bis.org/publ/qtrpdf/r_qt1509i.htm
63. Jeanneau, S. and Micu, M. (2002). Determinants of international bank lending to emerging market countries (BIS Working Paper No. 112). http://dx.doi.org/10.2139/ssrn.846316
64. Jordà, Ò., Schularick, M., Taylor, A.M. and Ward, F. (2018). Global financial cycles and risk premiums (NBER Working Paper Series No. w24677). https://doi.org/10.3386/w24677
65. Kalemli-Özcan, Ş. (2019). U.S. monetary policy and international risk spillovers (NBER Working Paper Series No. 26297). https://doi.org/10.3386/w26297
66. Klein, M.W. and Shambaugh, J.C. (2015). Rounding the corners of the policy trilemma: Sources of monetary policy autonomy. American Economic Journal: Macroeconomics, 7(4), 33-66. https://doi.org/10.1257/mac.20130237
67. Koepke, R. (2018). Fed policy expectations and portfolio flows to emerging markets. Journal of International Financial Markets, Institutions and Money, 55, 170-194. https://doi.org/10.1016/j.intfin.2018.03.003
68. Koepke, R. (2019). What drives capital flows to emerging markets? A survey of the empirical literature. Journal of Economic Surveys, 33(2), 516–540. https://doi.org/10.1111/joes.12273
69. Koop, G., Pesaran, M.H. and Potter, S.M. (1996). Impulse response analysis in nonlinear multivariate models. Journal of Econometrics, 74(1), 119-147. https://doi.org/10.1016/0304-4076(95)01753-4
70. Lee, S. and Bowdler, C. (2022). International spillovers from US monetary policy: Evidence from Asian bank-level data. Journal of International Money and Finance, 127, 102677. https://doi.org/10.1016/j.jimonfin.2022.102677
71. Ligonniere, S. (2018). Trilemma, dilemma and global players. Journal of International Money and Finance, 85, 20-39. https://doi.org/10.1016/j.jimonfin.2018.03.001
72. Lütkepohl, H. (2005). New introduction to multiple time series analysis. Berlin: Springer.
73. Milesi-Ferretti, G.-M. and Tille, C. (2011). The great retrenchment: International capital flows during the global financial crisis. Economic Policy, 26(66), 289–346. https://doi.org/10.1111/j.1468-0327.2011.00263.x
74. Miranda-Agrippino, S. and Rey, H. (2020). US monetary policy and the global financial cycle. Review of Economic Studies, 87(6), 2754–2776. https://doi.org/10.1093/restud/rdaa019
75. Montiel, P. and Reinhart, C.M. (1999). Do capital controls and macroeconomic policies influence the volume and composition of capital flows? Evidence from the 1990s. Journal of International Money and Finance, 18(4), 619–635. https://doi.org/10.1016/S0261-5606(99)00021-2
76. Morais, B., Peydró, J.L., Roldán-Peña, J. and Ruiz-Ortega, C. (2019). The international bank lending channel of monetary policy rates and QE: Credit supply, reach-for-yield, and real effects. The Journal of Finance, 74(1), 55-90. https://doi.org/10.1111/jofi.12735
77. Obstfeld, M. (2015). Trilemmas and trade-offs: living with financial globalisation (BIS Working Papers No. 480). Retrieved from https://www.bis.org/publ/work480.pdf https://doi.org/10.1142/9789811238628_0002
78. Obstfeld, M., Ostry, J.D. and Qureshi, M.S. (2019). A tie that binds: Revisiting the trilemma in emerging market economies. Review of Economics and Statistics, 101(2), 279-293. https://doi.org/10.1162/rest_a_00740
79. Obstfeld, M. and Rogoff, K. (1996). Foundations of international macroeconomics. Massachusetts: The MIT Press.
80. Obstfeld, M., Shambaugh, J.C. and Taylor, A.M. (2005). The trilemma in history: Tradeoffs among exchange rates, monetary policies, and capital mobility. Review of Economics and Statistics, 87(3), 423-438. https://doi.org/10.1162/0034653054638300
81. Obstfeld, M. and Taylor, A. M. (1998). The great depression as a watershed: International capital mobility over the long run (NBER Working Paper Series No. 5960). Retrieved from https://www.nber.org/papers/w5960
82. Passari, E. and Rey, H. (2015). Financial flows and the international monetary system. The Economic Journal, 125(584), 675–98. https://doi.org/10.1111/ecoj.12268
83. Pesaran, H.H. and Shin, Y. (1998). Generalized impulse response analysis in linear multivariate models. Economics Letters, 58(1), 17-29. https://doi.org/10.1016/S0165-1765(97)00214-0
84. Rey, H. (2015). Dilemma not trilemma: The global financial cycle and monetary policy independence (NBER Working Paper No. 21162). Retrieved from https://doi.org/10.3386/w21162
85. Rey, H. (2016). International channels of transmission of monetary policy and the Mundellian trilemma. IMF Economic Review, 64(1), 6-35. https://doi.org/10.1057/imfer.2016.4
86. Scheubel, B., Stracca, L. and Tille, C. (2019). The global financial cycle and capital flow episodes: A wobbly link? (ECB Working Paper Series No. 2337). http://dx.doi.org/10.2139/ssrn.3498205
87. Schmidt, J., Caccavaio, M., Carpinelli, L. and Marinelli, G. (2018). International spillovers of monetary policy: Evidence from France and Italy. Journal of International Money and Finance, 89, 50-66. https://doi.org/10.1016/j.jimonfin.2018.08.011
88. Takats, E. (2010). Was it credit supply? Cross-border bank lending to emerging market economies during the financial crisis. BIS Quarterly Review, 2, 49–56. Retrieved from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1632304
89. Taylor, M.P. and Sarno, L. (1997). Capital flows to developing countries: long-and short-term determinants. The World Bank Economic Review, 11(3), 451-470. https://doi.org/10.1093/wber/11.3.451
90. Tian, S., Wang, D. and Wang, L. (2022). Spillover impact of the U.S. monetary policy shock on China's economy: Capital flow channel. Economic Research- Ekonomska Istraživanja, 36(2), 2108099. https://doi.org/10.1080/1331677X.2022.2108099
91. Tumala, M.M., Salisu, A.A., Atoi, N.V. and Yaaba, B.N. (2021). International monetary policy spillovers to emerging economies in Sub-Saharan Africa: A Global VAR analysis. Scientific African, 14, e00976. https://doi.org/10.1016/j.sciaf.2021.e00976
92. World Bank. (1997). Private capital flows to developing countries: The road to financial integration (World Bank Polich Research Report No. 16700). Retrieved from https://documents1.worldbank.org/curated/en/569111468327550863/pdf/multi-page.pdf
93. Yildirim, Z. (2022). Global financial risk, the risk-taking channel, and monetary policy in emerging markets. Economic Modelling, 116, 106042. https://doi.org/10.1016/j.econmod.2022.106042