Capital Flow Waves: Surges, Stops, Flight, and Retrenchment / Kristin J. Forbes, Francis E. Warnock.

Format:

Book

Author/Creator:

Forbes, Kristin J.

Contributor:

National Bureau of Economic Research.

Warnock, Francis E.

Series:

Working Paper Series (National Bureau of Economic Research) no. w17351.

NBER working paper series no. w17351

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Capital Flow Waves

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2011.

Summary:

This paper analyzes waves in international capital flows. We develop a new methodology for identifying episodes of extreme capital flow movements using data that differentiates activity by foreigners and domestics. We identify episodes of "surges" and "stops" (sharp increases and decreases, respectively, of gross inflows) and "flight" and "retrenchment" (sharp increases and decreases, respectively, of gross outflows). Our approach yields fundamentally different results than the previous literature that used measures of net flows. Global factors, especially global risk, are significantly associated with extreme capital flow episodes. Contagion, whether through trade, banking, or geography, is also associated with stop and retrenchment episodes. Domestic macroeconomic characteristics are generally less important, and we find little association between capital controls and the probability of having surges or stops driven by foreign capital flows. The results provide insights for different theoretical approaches explaining crises and capital flow volatility.

Notes:

Print version record

August 2011.