During the 1990s, the increased propensity to save in emerging market economies triggered massive inflows towards safe assets in the United States; a few years later, rising dollar funding by global banks was concurrent to increasing inflows to private-label US securities.
While it is well documented that foreign financial flows have eased financing conditions in the US through the compression of long-term yields, in this paper we also find significant effects on the credit spread and the VIX, suggesting a relevant risk appetite channel.
Moreover, flows into the US corporate bond market, partly linked to the previous saving glut in emerging economies, also directly affected bank leverage, household indebtedness and the housing market.
This evidence provides a new perspective on the global banking glut, complementary to the role of banks in the risk-taking channel of monetary policy.
Published in 2020 in: Journal of International Money and Finance, v, 102
