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International Capital Flow Pressures

Author

Listed:
  • Linda S. Goldberg
  • Signe Krogstrup

Abstract

This paper presents a new measure of capital flow pressures in the form of a recast Exchange Market Pressure index. The measure captures pressures that materialize in actual international capital flows as well as pressures that result in exchange rate adjustments. The formulation is theory-based, relying on balance of payments equilibrium conditions and international asset portfolio considerations. Based on the modified exchange market pressure index, the paper also proposes the Global Risk Response Index, which reflects the country-specific sensitivity of capital flow pressures to measures of global risk aversion. For a large sample of countries over time, we demonstrate time variation in the effects of global risk on exchange market pressures, the evolving importance of the global factor across types of countries, and the changing risk-on or risk-off status of currencies.

Suggested Citation

  • Linda S. Goldberg & Signe Krogstrup, 2018. "International Capital Flow Pressures," IMF Working Papers 18/30, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:18/30
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    References listed on IDEAS

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    Cited by:

    1. McQuade, Peter & Schmitz, Martin, 2019. "America First? A US-centric view of global capital flows," Working Paper Series 2238, European Central Bank.
    2. Stefan Avdjiev & Valentina Bruno & Catherine Koch & Hyun Song Shin, 2019. "The Dollar Exchange Rate as a Global Risk Factor: Evidence from Investment," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 67(1), pages 151-173, March.
    3. repec:pal:imfecr:v:67:y:2019:i:1:d:10.1057_s41308-018-0072-6 is not listed on IDEAS
    4. Thorbecke, Willem & Kato, Atsuyuki, 2018. "Exchange rates and the Swiss economy," Journal of Policy Modeling, Elsevier, vol. 40(6), pages 1182-1199.
    5. Willem THORBECKE & Nimesh SALIKE, 2018. "Export Sophistication and Trade Elasticities," Discussion papers 18061, Research Institute of Economy, Trade and Industry (RIETI).

    More about this item

    Keywords

    Capital flows; Exchange markets; Foreign exchange reserves; Exchange rates; Exchange rate policy; International investment position; Balance of payments statistics; Balance of payments; Exchange rate shocks; Exchange Market Pressure; Risk aversion; Safe haven; Exchange Rate; Portfolio Choice; General; flow pressure; GRR; base currency; EMP; VIX;

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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