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Capital flows-at-risk: push, pull and the role of policy

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  • Eguren-Martin, Fernando
  • O’Neill, Cian
  • Sokol, Andrej
  • Berge, Lukas von dem

Abstract

We characterise the probability distributions of various categories of gross capital flows conditional on information contained in financial asset prices in a panel of emerging market economies, with a focus on ‘tail’ events. Our framework, based on the quantile regression methodology, allows for a separate role of push- and pull-type factors, and because it is based on high-frequency data, can quantify the likelihood of different outturns before official capital flows data are released. We find that both push and pull factors have heterogeneous effects across the distributions of gross capital flows, which are most marked in the left tails. We also explore the role of various policies, and find that macroprudential and capital flows management measures are stabilising, leading to lower chances of either large portfolio inflows or out flows. JEL Classification: F32, F34, G15

Suggested Citation

  • Eguren-Martin, Fernando & O’Neill, Cian & Sokol, Andrej & Berge, Lukas von dem, 2021. "Capital flows-at-risk: push, pull and the role of policy," Working Paper Series 2538, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20212538
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    2. Gelos, Gaston & Gornicka, Lucyna & Koepke, Robin & Sahay, Ratna & Sgherri, Silvia, 2022. "Capital flows at risk: Taming the ebbs and flows," Journal of International Economics, Elsevier, vol. 134(C).
    3. Martínez-Jaramillo, Serafín & Montañez-Enríquez, Ricardo & Ossandon Busch, Matias & Ramos-Francia, Manuel & Rodríguez-Martínez, Anahí & Sánchez-Martínez, Manuel, 2022. "Stress-ridden finance and growth losses: Does financial development break the link?," IWH Discussion Papers 3/2022, Halle Institute for Economic Research (IWH).
    4. Anusha Chari & Karlye Dilts Stedman & Christian T. Lundblad, 2020. "Capital Flows in Risky Times: Risk-On / Risk-Off and Emerging Market Tail Risk," Research Working Paper RWP 20-08, Federal Reserve Bank of Kansas City.
    5. Chari, Anusha & Dilts-Stedman, Karlye & Forbes, Kristin, 2022. "Spillovers at the extremes: The macroprudential stance and vulnerability to the global financial cycle," Journal of International Economics, Elsevier, vol. 136(C).
    6. Gabor, Daniela, 2021. "The Liquidity and Sustainability Facility for African Sovereign Bonds: a good ECA/PIMCO idea whose time has come?," SocArXiv erku6, Center for Open Science.
    7. Bank for International Settlements, 2021. "Changing patterns of capital flows," CGFS Papers, Bank for International Settlements, number 66, december.
    8. Sokol, Andrej, 2021. "Fan charts 2.0: flexible forecast distributions with expert judgement," Working Paper Series 2624, European Central Bank.
    9. Yoshihiko Norimasa & Kazuki Ueda & Tomohiro Watanabe, 2021. "Emerging Economies' Vulnerability to Changes in Capital Flows: The Role of Global and Local Factors," Bank of Japan Working Paper Series 21-E-5, Bank of Japan.
    10. Tihana Škrinjarić & Maja Sabol, 2023. "Easier said than done: Predicting downside risks to house prices in Croatia," Working Papers 73, The Croatian National Bank, Croatia.
    11. Tihana Škrinjarić, 2023. "Macroprudential stance assessment: problems of measurement, literature review and some comments for the case of Croatia," Working Papers 72, The Croatian National Bank, Croatia.
    12. Ossandon Busch, Matias & Sánchez-Martínez, José Manuel & Rodríguez-Martínez, Anahí & Montañez-Enríquez, Ricardo & Martínez-Jaramillo, Serafín, 2022. "Growth at risk: Methodology and applications in an open-source platform," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 3(3).
    13. Michal Franta & Jan Libich, 2021. "Holding the Economy by the Tail: Analysis of Short- and Long-run Macroeconomic Risks," Working Papers 2021/3, Czech National Bank.

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    More about this item

    Keywords

    capital controls; capital flight; capital flows; capital flow surges; financial conditions indices; macroprudential policy; push versus pull; quantile regression; retrenchment; sudden stops;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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