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Capital Flow Reversals and Currency Crises: Do Capital Flow Types Matter?

Author

Listed:
  • Mengting Zhang
  • Andreas Steiner
  • Jakob de Haan
  • Haizhen Yang

Abstract

We analyse how reversals of several types of capital flows impact currency crises in emerging market and developing economies. Estimates of logit models show that reversals of (equity and debt) portfolio flows significantly increase the likelihood of currency crises in emerging market economies. In developing economies, reversals of portfolio debt flows and banking flows have a significant positive impact on currency crises. Finally, our results suggest that countries with mature financial systems and fixed exchange rate regimes are less likely to experience a currency crisis after a capital flow shock. The mediating role of capital account liberalization varies by country type.

Suggested Citation

  • Mengting Zhang & Andreas Steiner & Jakob de Haan & Haizhen Yang, 2024. "Capital Flow Reversals and Currency Crises: Do Capital Flow Types Matter?," CESifo Working Paper Series 11008, CESifo.
    • Handle: RePEc:ces:ceswps:_11008
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    More about this item

    Keywords

    capital flow reversals; currency crises; event study approach; logit models; domestic financial factors;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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