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International Capital Flow Pressures

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  • Linda S. Goldberg
  • Signe Krogstrup

Abstract

Pressures on currencies manifest in exchange rate adjustments and international capital flows, and can also be offset by policy responses. This paper presents a theory-based measure of capital flow pressures, a new Exchange Market Pressure index, which combines pressures observed in exchange rate adjustments, official foreign exchange intervention and monetary policy changes. We use the index to identify so called safe-haven and risk-on status currencies and investigate the drivers of this status, showing the importance of country net foreign asset positions, size, and capital account openness. We also re-assess the contribution of the global financial factor in international capital flow pressures. The global factor explains a larger share of pressures on currencies measured using the EMP compared with using capital flow quantities. However, this global factor share is strongly dominated by idiosyncratic variation and only episodically large.

Suggested Citation

  • Linda S. Goldberg & Signe Krogstrup, 2018. "International Capital Flow Pressures," NBER Working Papers 24286, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:24286
    Note: IFM ITI
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    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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