Risk contagion of net international short-term capital flows: A volatility spillover network perspective

This paper investigates the dynamic connectedness of risk in net short-term capital flows across 35 major economies through a volatility spillover network perspective. Our analysis reveals a “core-periphery” network structure, where global financial centers and commodity-exporting emerging economies always serve as core receivers of net short-term capital flow volatility. Major emerging economies, notably China, Russia, and Brazil, acted as key transmitters of volatility both prior to the 2008 financial crisis and during the Federal Reserve's (Fed's) quantitative easing. As the Fed normalized monetary policy, spillover dominance transitioned to global financial hubs. Cluster analysis indicates that during the COVID-19 pandemic and its recovery period, spillovers became more regionally clustered. Major economies, such as the U.S., China, and Japan, transmitted volatility to global financial hubs, while Asia-Pacific and Latin American emerging markets demonstrated intensified internal regional spillover effects.