Report

International Capital Flow Pressures and Global Factors

Abstract: The risk sensitivity of international capital flow pressures is explored using a new Exchange Market Pressure index that combines pressures observed in exchange rate adjustments with model-based estimates of incipient pressures that are masked by foreign exchange interventions and policy rate adjustments. The sensitivity of capital flow pressures to risk sentiment, including for so-called safe-haven currencies, evolves over time, varies significantly across countries, and differs between normal times and extreme stress events. Across countries, risk sensitivities and safe-haven status are associated with self-fulfilling exchange rate expectations and carry trade funding currencies. In contrast, association with more traditional macroeconomic country characteristics is weak.

Keywords: exchange market pressure; risk aversion; safe haven; capital flows; exchange rates; foreign exchange interventions; global financial cycle;

JEL Classification: F32; G11; G20;

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Staff Reports

Publication Date: 2023-02-01

Number: 1051