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The Volatility of Capital Flows in Emerging Markets: Measures and Determinants

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  • Maria Sole Pagliari
  • Mrs. Swarnali A Hannan

Abstract

Capital flow volatility is a concern for macroeconomic and financial stability. Nonetheless, literature is scarce in this topic. Our paper sheds light on this issue in two dimensions. First, using quarterly data for 65 countries over the period 1970Q1-2016Q1, we construct three measures of volatility, for total capital flows and key instruments. Second, we perform panel regressions to understand the determinants of volatility. The measures show that the volatility of all instruments is prone to bouts, rising sharply during global shocks like the taper tantrum episode. Capital flow volatility thus remains a challenge for policy makers. The regression results suggest that push factors can be more important than pull factors in explaining volatility, illustrating that the characteristics of volatility can be different from those of the flows levels.

Suggested Citation

  • Maria Sole Pagliari & Mrs. Swarnali A Hannan, 2017. "The Volatility of Capital Flows in Emerging Markets: Measures and Determinants," IMF Working Papers 2017/041, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2017/041
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    More about this item

    Keywords

    WP; capital flow; flow volatility; volatility estimate; standard deviation; Volatility Estimation; International Flows; Financial; volatility measure; portfolio flow; flows to emdes; Cross border; estimation outcome; volatility in emdes; capital flow volatility; volatility of capital flow; capital flow movement; Cross border capital; Capital flows; Capital inflows; Financial statistics; Oil prices; Global financial crisis of 2008-2009; Global;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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