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Capital inflow surges in emerging economies: how worried should Latin America and the Caribbean be?

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  • Powell, Andrew
  • Tavella, Pilar

Abstract

This paper analyzes capital inflow surges to emerging economies. Probit models estimated on the period 1980-2005 discriminate well between surges associated with banking crises or recessions, and those that end without such events. The composition of inflows and the extent of financial reform are significant determinants of outcomes. Applying the models to LAC we find relatively high estimated probabilities for recessions and lower probabilities for banking crises for post- 2005 surges. While there were no financial crises in LAC 7 countries, some surges may have contributed to the slowdown in growth. Our results constitute a prima-facie case for macro- prudential interventions.
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  • Powell, Andrew & Tavella, Pilar, 2015. "Capital inflow surges in emerging economies: how worried should Latin America and the Caribbean be?," LSE Research Online Documents on Economics 123068, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:123068
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    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G00 - Financial Economics - - General - - - General
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities

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