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The cyclical properties of disaggregated capital flows

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  • Silvio Contessi
  • Pierangelo DePace
  • Johanna Francis

Abstract

We describe the second-moment properties of the components of international capital flows and their relationship (covariance and correlation) to business cycle variables of 22 emerging and OECD countries. Disaggregated flows have different volatility properties, with debt being the most volatile and FDI the least volatile. We show that (a) inward flows are procyclical, outward and net outward flows are countercyclical for most industrial and emerging countries while, for the G-7, both inward and outward flows are procyclical and net outflows are countercyclical; (b) inward FDI flows are procyclical in industrial countries, countercyclical in emerging countries; and (c) there is no clear pattern for other equity flows and debt. Using formal statistical tests, we document changes in variability, covariance, and correlation of capital flows with a set of macroeconomic variables for G-7 countries. We find mixed evidence of changes over capital account liberalization episodes and breaks in international business cycles, and a clear increase in variance for all types and signs of flows. We estimate breaks at unknown dates in the conditional variance of each capital flow to find that they differ considerably from the breaks associated with capital account liberalization and financial globalization.

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Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2008-041.

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Date of creation: 2008
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Handle: RePEc:fip:fedlwp:2008-041

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Keywords: Capital movements ; Business cycles;

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Citations

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Cited by:
  1. Francis, Johanna L. & Aykut, Dilek & Tereanu, Eugen, 2014. "The cost of private debt over the credit cycle," Journal of International Money and Finance, Elsevier, vol. 41(C), pages 146-181.
  2. Joseph P. Byrne & Norbert Fiess, 2011. "International capital flows to emerging and developing countries: national and global determinants," Working Papers 2011_01, Business School - Economics, University of Glasgow.
  3. Contessi, Silvio & De Pace, Pierangelo & Francis, Johanna L., 2012. "Changes in the second-moment properties of disaggregated capital flows," Economics Letters, Elsevier, vol. 115(1), pages 122-127.
  4. Silvio Contessi & Pierangelo De Pace, 2011. "The (non-)resiliency of foreign direct investment in the United States during the 2007-2009 financial crisis," Working Papers 2011-037, Federal Reserve Bank of St. Louis.
  5. Silvio Contessi & Johanna Francis, 2009. "U.S. commercial bank lending through 2008:Q4: new evidence from gross credit flows," Working Papers 2009-011, Federal Reserve Bank of St. Louis.
  6. Silvio Contessi & Pierangelo DePace & Johanna Francis, 2008. "The cyclical properties of disaggregated capital flows," Working Papers 2008-041, Federal Reserve Bank of St. Louis.
  7. Silvio Contessi & Pierangelo DePace, 2008. "Do European capital flows comove?," Working Papers 2008-042, Federal Reserve Bank of St. Louis.
  8. Eylem Ersal Kiziler, 2011. "Growth Shocks and Portfolio Flows," Working Papers 11-02, UW-Whitewater, Department of Economics.
  9. Silvio Contessi & Ariel Weinberger, 2009. "Foreign direct investment, productivity, and country growth: an overview," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 61-78.

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