Capital Flows are Fickle: Anytime, Anywhere

By John Bluedorn, Rupa Duttagupta, Jaime Guajardo, P. Topalova. Social Science Research Network, 2013

178 citations recorded by the source corpus.

Has the unprecedented financial globalization of recent years changed the behavior of capital flows across countries? Using a newly constructed database of gross and net capital flows since 1980 for a sample of nearly 150 countries, this paper finds that private capital flows are typically volatile for all countries, advanced or emerging, across all points in time. This holds true across most types of flows, including bank, portfolio debt, and equity flows. Advanced economies enjoy a greater substitutability between types of inflows, and complementarity between gross inflows and outflows, than do emerging markets, which reduces the volatility of their total net inflows despite higher volatility of the components. Capital flows also exhibit low persistence, across all economies and across most types of flows. Inflows tend to rise temporarily when global financing conditions are relatively easy. These findings suggest that fickle capital flows are an unavoidable fact of life to which policymakers across all countries need to continue to manage and adapt.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/300611498d0f7175572d745ed15e1b7827127606

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Citations in the corpus

The new IMF approach to capital account management and its blind spots: lessons from Brazil and South Korea (2014, background): “In other words, net flows to emerging markets were stronger in a setting of low global interest rates and reduced risk aversion (Bluedorn et al. 2013, 27).”
Capital Flow Management Measures: What Are They Good For? (2014, unknown): “If the answer is affirmative, CFMs could help stabilize economies experiencing substantial capital flow volatility driven by external factors (see Bluedorn et al., 2013).”
U.S. Monetary Policy and International Risk Spillovers (2019, background): “In EMEs, net capital flows (capital inflows by foreigners (liabilities) minus capital outflows by domestic residents (assets)—equivalently the current account with a reverse sign) are mainly driven by the actions of foreign investors (Bluedorn et al. (2013), and Avdjiev et al. (2019)).”
WHAT DRIVES CAPITAL FLOWS TO EMERGING MARKETS? A SURVEY OF THE EMPIRICAL LITERATURE (2018, unknown): “Emerging markets are generally perceived to be a riskier asset class, which is reflected in the volatility of capital flows (Bluedorn et al. 2013).”
Can Foreign Exchange Intervention Stem Exchange Rate Pressures from Global Capital Flow Shocks? (2015, unknown): “…on the nature of these gross flows, see for example, Powell et al. (2002), Cowan et al (2008), Rothenberg and Warnock (2011), Forbes and Warnock (2012), Bruno and Shin (2012), Calderón and Kubota (2013), Bluedorn et al (2013), Cavallo et al (2013), Broner et al (2013), and Alberola et al (2013).”