LOCAL CURRENCY BOND MARKETS, FOREIGN INVESTOR PARTICIPATION AND CAPITAL FLOW VOLATILITY IN EMERGING ASIA

This paper examines the role of local currency bond markets (LCBMs) and foreign investor participation in these capital flow volatility emerging Asian economies over period 1999 to 2020. Using a panel analysis impulse response functions generated from structural vector autoregression, we show that greater development LCBMs across 10 terms capitalization helps mitigate against volatility, while has opposite effect, particularly for less developed LCBMs. Our findings have policy implications financial stability perspective, whereby continued efforts enhance reducing reliance on investors should be encouraged. Strengthening base mobilizing domestic resources through ought priority raising long-term will enable financing sustainable investment development. also suggest are needed exchange hedging arrangements LCBMs, times heightened stress.