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Capital Flows are Fickle

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Author Info

  • John C Bluedorn
  • Rupa Duttagupta
  • Jaime Guajardo
  • Petia Topalova

Abstract

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.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/183.

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Length: 37
Date of creation: 22 Aug 2013
Date of revision:
Handle: RePEc:imf:imfwpa:13/183

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Related research

Keywords: Capital flows; Globalization; Developed countries; Developing countries; Cross country analysis; international capital flows; volatility; persistence; comovement; global factors; net capital flows; capital inflows; private capital flows; risk aversion; volatility of capital flows; capital outflows; private flows; capital movements; capital mobility; management of capital flows; composition of capital inflows; border capital flows; current account balance; capital flow volatility; measures of volatility; flows of debt; government bonds; current account deficit; capital flow reversals; short-term capital; moral hazard;

This paper has been announced in the following NEP Reports:

References

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  1. Classens, S. & Dooley, M.P. & Warner, A., 1995. "Portfolio Capital Flows: Hot or Cold," Papers 501, Harvard - Institute for International Development.
  2. Fratzscher, Marcel, 2011. "Capital flows, push versus pull factors and the global financial crisis," Working Paper Series 1364, European Central Bank.
  3. Sarno, Lucio & Taylor, Mark P., 1999. "Hot money, accounting labels and the permanence of capital flows to developing countries: an empirical investigation," Journal of Development Economics, Elsevier, vol. 59(2), pages 337-364, August.
  4. Guillermo A. Calvo & Eduardo Fernández-Arias & Ernesto Talvi & Carmen M. Reinhart, 2001. "The Growth-Interest Rate Cycle in the United States and its Consequences for Emerging Markets," IDB Publications 6491, Inter-American Development Bank.
  5. Broner, Fernando & Didier, Tatiana & Erce, Aitor & Schmukler, Sergio L., 2011. "Gross capital flows : dynamics and crises," Policy Research Working Paper Series 5768, The World Bank.
  6. Katherine Smith & Diego Valderrama, 2007. "The composition of capital flows when emerging market firms face financing constraints," 2007 Meeting Papers 533, Society for Economic Dynamics.
  7. Robert E. Lipsey, 2001. "Foreign Direct Investors in Three Financial Crises," NBER Working Papers 8084, National Bureau of Economic Research, Inc.
  8. Robert E. Lipsey & Robert C. Feenstra & Carl H. Hahn & George N. Hatsopoulos, 1999. "The Role of Foreign Direct Investment in International Capital Flows," NBER Chapters, in: International Capital Flows, pages 307-362 National Bureau of Economic Research, Inc.
  9. Rui Albuquerque, 2004. "The Composition of International Capital Flows: Risk Sharing Through Foreign Direct Investment," International Finance 0405004, EconWPA.
  10. Jonathan David Ostry & Atish R. Ghosh & Karl Friedrich Habermeier & Marcos Chamon & Mahvash Saeed Qureshi & Dennis B. S. Reinhardt, 2010. "Capital Inflows," IMF Staff Position Notes 2010/04, International Monetary Fund.
  11. Paolo Mauro & Andrei A. Levchenko, 2006. "Do Some Forms of Financial Flows Help Protect From Sudden Stops?," IMF Working Papers 06/202, International Monetary Fund.
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Cited by:
  1. Jaroslava Durčáková & Ondřej Šíma, 2013. "BRICS: Exchange Rate policy in Context of Internal and External Equilibrium," Český finanční a účetní časopis, University of Economics, Prague, vol. 2013(4), pages 7-29.

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