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Official financial flows, capital mobility, and global imbalances

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  • Bayoumi, Tamim
  • Gagnon, Joseph
  • Saborowski, Christian

Abstract

We use a cross-country panel framework to analyze the effect of net official flows (chiefly foreign exchange intervention) on current accounts. We find that net official flows have a large but plausible effect on current account balances. The estimated effects are larger with instrumental variables (42 cents to the dollar on average compared to 24 without instruments), reflecting a possible downward bias in regressions without instruments owing to an endogenous response of net official flows to private financial flows. We consistently find larger impacts of net official flows when international capital flows are restricted and smaller impacts when capital is highly mobile. A further result is that there is an important positive effect of lagged net official flows (embodied in the lagged stock of official assets) on current accounts that we believe operates through the portfolio balance channel.1

Suggested Citation

  • Bayoumi, Tamim & Gagnon, Joseph & Saborowski, Christian, 2015. "Official financial flows, capital mobility, and global imbalances," Journal of International Money and Finance, Elsevier, vol. 52(C), pages 146-174.
    • Handle: RePEc:eee:jimfin:v:52:y:2015:i:c:p:146-174
    DOI: 10.1016/j.jimonfin.2014.11.017
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    More about this item

    Keywords

    Current account balance; Foreign exchange intervention; Portfolio balance;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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