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We study the dynamic response of gross capital flows in emerging market economies to different global financial shocks, using a panel vector-autoregressive (PVAR) setting. Our focus lies primarily on the potentially stabilizing role played by domestic investors in offsetting the response of foreign investors to global shocks. We find evidence of such role, but its existence and magnitude depend on the nature of the shock. Local investors play a meaningful stabilizing role in the face of global uncertainty shocks, as well as shocks to long-term U.S. interest rates. However, while in the former case, sizeable asset repatriation largely offsets the retrenchment of non-residents, in the latter case the extent of the offsetting is much more limited. Meanwhile, residents and non-resident behave alike in response to short-term U.S. interest rate shocks, pulling capital away from emerging markets, although magnitudes are not economically significant. The results shed light on the potential impact of the Fed’s QE tapering on emerging market economies.

Alien property --- Capital movements --- Financial crises --- Capital flight --- Capital flows --- Capital inflow --- Capital outflow --- Flight of capital --- Flow of capital --- Movements of capital --- Balance of payments --- Foreign exchange --- International finance --- Assets, Foreign --- Foreign assets --- Foreign property --- Property, Alien --- Aliens --- International law --- Enemy property --- Banks and Banking --- Exports and Imports --- International Finance: General --- Current Account Adjustment --- Short-term Capital Movements --- Open Economy Macroeconomics --- International Financial Markets --- International Investment --- Long-term Capital Movements --- Interest Rates: Determination, Term Structure, and Effects --- International economics --- Finance --- Capital inflows --- Short term interest rates --- Long term interest rates --- External position --- Financial services --- Interest rates --- Investments, Foreign --- United States