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Do Contagion Effects Exist in Capital Flow Volatility?

  • Lee, Hyun-Hoon

    (Kangwon National University)

  • Park, Cyn-Young

    (Asian Development Bank)

  • Byun, Hyung-suk

    (Kangwon National University)

The paper aims to assess what influences volatility of capital flows to emerging countries and whether or not there is a spillover or contagion effect in the volatility. The empirical results suggest strong and significant contagion effects from global and regional volatilities on the volatility of capital flows in different types to individual economies. The evidence of contagion from global and regional volatilities implies that there is a strong need for global and regional policy cooperation to contain the spillover or contagion effects. However, other policy variables have a differential and time-varying effect on volatility of different types of capital inflow, presenting policy dilemma and challenge to producing coordinated efforts by global and regional policy makers.

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Paper provided by Asian Development Bank in its series ADB Economics Working Paper Series with number 302.

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Length: 44 pages
Date of creation: 30 Sep 2012
Date of revision:
Handle: RePEc:ris:adbewp:0302
Note: http://www.adb.org/sites/default/files/pub/2012/economics-wp302.pdf
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  1. Carmen M. Reinhart & Sara Calvo, 1996. "Capital Flows to Latin America: Is There Evidence of Contagion Effects?," Peterson Institute Press: Chapters, in: Guillermo A. Calvo & Morris Goldstein & Eduard Hochreiter (ed.), Private Capital Flows to Emerging Markets After the Mexican Crisis, pages 151-171 Peterson Institute for International Economics.
  2. Laura Alfaro & Sebnem Kalemli-Ozcan & Vadym Volosovych, 2007. "Capital Flows in a Globalized World: The Role of Policies and Institutions," NBER Chapters, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 19-72 National Bureau of Economic Research, Inc.
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  8. Diebold, Francis X. & Yilmaz, Kamil, 2008. "Measuring financial asset return and volatilty spillovers, with application to global equity markets," CFS Working Paper Series 2008/26, Center for Financial Studies (CFS).
  9. Bacchetta, Philippe & van Wincoop, Eric, 1998. "Capital Flows to Emerging Markets: Liberalization, Overshooting and Volatility," CEPR Discussion Papers 1889, C.E.P.R. Discussion Papers.
  10. Neumann, Rebecca M. & Penl, Ron & Tanku, Altin, 2009. "Volatility of capital flows and financial liberalization: Do specific flows respond differently?," International Review of Economics & Finance, Elsevier, vol. 18(3), pages 488-501, June.
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  20. Broto, Carmen & Díaz-Cassou, Javier & Erce, Aitor, 2011. "Measuring and explaining the volatility of capital flows to emerging countries," Journal of Banking & Finance, Elsevier, vol. 35(8), pages 1941-1953, August.
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  23. Robert F. Engle & Jose Gonzalo Rangel, 2008. "The Spline-GARCH Model for Low-Frequency Volatility and Its Global Macroeconomic Causes," Review of Financial Studies, Society for Financial Studies, vol. 21(3), pages 1187-1222, May.
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