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Capital Flows to Emerging Economies and Global Risk Aversion during the COVID-19 Pandemic

Author

Listed:
  • Alba Carlos
  • Cuadra Gabriel
  • Hernández Juan R.
  • Ibarra-Ramírez Raúl

Abstract

This paper analyzes recent changes in the relative importance of the determinants of capital flows to emerging market economies. For this purpose, we estimate vector autoregressive (VAR) models for the period 2009-2020. Based on these models, we estimate the effects on debt flows from shocks to their determinants. Then, we quantify the contribution of each of the variables included in the model to explain the evolution of these flows in each month of the sample through a historical decomposition analysis. The main results indicate that the contribution of global risk aversion to explain the evolution of debt flows increased during March 2020 compared to the past, although its relative importance has decreased since, particularly as the performance of financial markets improved.

Suggested Citation

  • Alba Carlos & Cuadra Gabriel & Hernández Juan R. & Ibarra-Ramírez Raúl, 2021. "Capital Flows to Emerging Economies and Global Risk Aversion during the COVID-19 Pandemic," Working Papers 2021-17, Banco de México.
    • Handle: RePEc:bdm:wpaper:2021-17
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    2. Juan Carlos Moreno-Brid & Lorenzo Nalin & Edgar Pérez-Medina, 2022. "External challenges to the economic expansion of emerging markets in the post-COVID 19 and post-COP26 era: A balance-of-payments constrained growth (BPCG) perspective," PSL Quarterly Review, Economia civile, vol. 75(303), pages 313-354.

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    More about this item

    Keywords

    Capital Flows; Global Risk Aversion; COVID-19; Vector Autoregression;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • 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
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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