Capital Flows to Emerging Markets: Liberalization, Overshooting, and Volatility / Philippe Bacchetta, Eric van Wincoop.

Format:

Book

Author/Creator:

Bacchetta, Philippe.

Contributor:

National Bureau of Economic Research.

van Wincoop, Eric.

Series:

Working Paper Series (National Bureau of Economic Research) no. w6530.

NBER working paper series no. w6530

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Capital Flows to Emerging Markets

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1998.

Summary:

The paper analyzes the impact of financial liberalizations and reforms in emerging markets on the dynamics of capital flows to these markets, using a simple model of international investors' behavior. We first show that the gradual nature of liberalizations, combined with the cost of absorbing large inflows in emerging economies, leads to rich dynamics of capital flows and often implies an initial period of overshooting as portfolios adjust. Asset prices will overshoot as well. Second, we show that if investors have incomplete information about new emerging markets, and learn over time, there can be high volatility of capital flows as well as contagion. Finally, we provide numerical estimates of long run capital inflows to emerging market economies and compare them to actual inflows. This gives a good indicator of upcoming crisis situations.

Notes:

Print version record

April 1998.