Global financial markets have been a source of sizable shocks over the past decade, with broad repercussions across emerging markets. Stark examples are the crisis triggered by the bankruptcy of Lehman Brothers in 2008, and the quantitative easing (QE) program in advanced economies in the aftermath of that crisis. Looking forward, new shocks are likely, as the reduction in the scale of bond purchases by the Federal Reserve—known as“QE tapering”—marks only the start of the normalization of U.S. monetary conditions. Against this backdrop, understanding the implications of global financial shocks in terms of their effect on capital flows to and from emerging market economies (EMEs)remains a key issue.

New Challenges to Growth and Stability