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Surges

Author

Listed:
  • Mr. Juan Zalduendo
  • Mr. Jun I Kim
  • Miss Mahvash S Qureshi
  • Mr. Atish R. Ghosh

Abstract

This paper examines why surges in capital flows to emerging market economies (EMEs) occur, and what determines the allocation of capital across countries during such surge episodes. We use two different methodologies to identify surges in EMEs over 1980-2009, differentiating between those mainly caused by changes in the country's external liabilities (reflecting the investment decisions of foreigners), and those caused by changes in its assets (reflecting the decisions of residents). Global factors-including US interest rates and risk aversion¡-are key to determining whether a surge will occur, but domestic factors such as the country's external financing needs (as implied by an intertemporal optimizing model of the current account) and structural characteristics also matter, which explains why not all EMEs experience surges. Conditional on a surge occurring, moreover, the magnitude of the capital inflow depends largely on domestic factors including the country's external financing needs, and the exchange rate regime. Finally, while similar factors explain asset- and liability-driven surges, the latter are more sensitive to global factors and contagion.

Suggested Citation

  • Mr. Juan Zalduendo & Mr. Jun I Kim & Miss Mahvash S Qureshi & Mr. Atish R. Ghosh, 2012. "Surges," IMF Working Papers 2012/022, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2012/022
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    2. Chantapacdepong, Pornpinun & Shim, Ilhyock, 2015. "Correlations across Asia-Pacific bond markets and the impact of capital flow management measures," Pacific-Basin Finance Journal, Elsevier, vol. 34(C), pages 71-101.

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    More about this item

    Keywords

    WP; price index; exchange rate regime; return on equity; surges; capital flows; emerging market economies; index volatility; real interest rate differential; nominal exchange rate; flows to EME; net capital flow; flow surge; surge episode; Real interest rates; Capital account; Exchange rate arrangements; Current account; Global;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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