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Debt- and Equity-Led Capital Flow Episodes

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  • Kristin J. Forbes
  • Francis E. Warnock

Abstract

Forbes and Warnock (2012) identify episodes of extreme capital flow movements—surges, stops, flight, and retrenchment—and find that global factors, especially global risk, are significantly associated with extreme capital flow episodes whereas domestic macroeconomic characteristics and capital controls are less important. That analysis leads naturally to the question of which types of capital flows are driving the episodes and if debt- and equity-led episodes differ in material ways. After identifying debt- and equity-led episodes, we find that most episodes of extreme capital flow movements around the world are debt-led and the factors associated with debt-led episodes are similar to the factors behind episodes identified with aggregate capital flow data. In contrast, equity-led episodes are less frequent, more idiosyncratic, and differ in nature from other episodes.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18329.

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Date of creation: Aug 2012
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Publication status: Forthcoming: Forbes, K., and F. Warnock, 2012. "Debt- and Equity-Led Capital Flow Episodes." in Capital Mobility and Monetary Policy, edited by Miguel Fuentes and Carmen M. Reinhart. Santiago: Central Bank of Chile
Handle: RePEc:nbr:nberwo:18329

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  1. Guillermo A. Calvo & Alejandro Izquierdo & Luis Fernando Mejía, 2004. "On the Empirics of Sudden Stops: The Relevance of Balance-Sheet Effects," IDB Publications 6516, Inter-American Development Bank.
  2. Kevin Cowan & Jose De Gregorio & Alejandro Micco & Christopher Neilson, 2007. "Financial Diversification, Sudden Stops and Sudden Starts," Working Papers Central Bank of Chile, Central Bank of Chile 423, Central Bank of Chile.
  3. Forbes, Kristin J. & Warnock, Francis E., 2012. "Capital flow waves: Surges, stops, flight, and retrenchment," Journal of International Economics, Elsevier, Elsevier, vol. 88(2), pages 235-251.
  4. Miroslav Misina, 2003. "What Does the Risk-Appetite Index Measure?," Working Papers, Bank of Canada 03-23, Bank of Canada.
  5. Patrick McGuire & Nikola Tarashev, 2006. "Tracking international bank flows," BIS Quarterly Review, Bank for International Settlements, Bank for International Settlements, December.
  6. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2007. "The external wealth of nations mark II: Revised and extended estimates of foreign assets and liabilities, 1970-2004," Journal of International Economics, Elsevier, Elsevier, vol. 73(2), pages 223-250, November.
  7. Martin Schindler, 2009. "Measuring Financial Integration: A New Data Set," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 222-238, April.
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Cited by:
  1. Philip Lane, 2013. "International Capital Flows and Domestic Financial Conditions: Lessons for Emerging Asia," The Institute for International Integration Studies Discussion Paper Series, IIIS iiisdp438, IIIS.
  2. Hoffmann, Andreas & Loeffler, Axel, 2013. "Low interest rate policy and the use of reserve requirements in emerging markets," Working Papers 120, University of Leipzig, Faculty of Economics and Management Science.
  3. Peter J. Montiel, 2013. "Capital Flows: Issues and Policies," IDB Publications 82145, Inter-American Development Bank.
  4. Reinhardt, Dennis & Dell'Erba, Salvatore, 2013. "Not all capital waves are alike: a sector-level examination of surges in FDI inflows," Bank of England working papers 474, Bank of England.

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