Financial Globalization

This research explores capital flows and the role of the US dollar as a global financial factor affecting financial and investment decisions globally. The project will shed new light in the field of international finance, connecting academic research to the current policy debate. The research will investigate whether borrowing in domestic currency insulates emerging market countries from global financial conditions. The project will also assess whether global banks' dollar funding is still a source of financial vulnerability more than ten years after the Global Financial Crisis and several ensuing regulatory changes, such as the 2016 US reform of money market funds, the strengthening of capital and liquidity measures, and interventions by central banks. The project will have potential implications for both domestic and global financial policies and regulations.

Using a unique database of US investor flows into emerging market securities containing information on the currency denomination of the flows, the project will study how dollar appreciation negatively affects domestic bond spreads, with an amplification channel through investments in local currency bonds by US mutual funds. The project will further consider important financial episodes such as the 2008 financial crisis, the Taper Tantrum phase, and the COVID-19 shock to assess how the transmission of the shock propagate to the real economy and whether non-US banks have become more resilient to dollar shocks after more than ten years of regulatory interventions.

This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.