The impact of sovereign wealth funds on global financial markets |
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Authors: | Roland Beck Michael Fidora |
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Institution: | (1) European Central Bank, Frankfurt am Main, Germany |
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Abstract: | If sovereign wealth funds act similarly to private investors and thus allocate foreign assets according to market capitalisation
rather than liquidity considerations, official portfolios reduce their “bias” towards the major reserve currencies — the US
dollar and the euro. As a result, more capital flows “downhill“ from rich to less wealthy economies. In this scenario, the
euro area and the United States would be subject to net capital outflows while Japan and the emerging markets would attract
net capital inflows. The potential implications of a rebalancing of international capital flows for stock prices, interest
rates and exchange rates remain uncertain, however.
The authors wish to thank Marcel Fratzscher for excellents comments. The views expressed in this paper are those of the authors
and do not necessarily reflect those of the European Central Bank. |
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