How Important is the Global Financial Cycle? Evidence from Capital Flows

Author/Editor:

Eugenio M Cerutti ; Stijn Claessens ; Andrew K. Rose

Publication Date:

September 1, 2017

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

This study quantifies the importance of a Global Financial Cycle (GFCy) for capital flows. We use capital flow data dis-aggregated by direction and type between 1990Q1 and 2015Q5 for 85 countries, and conventional techniques, models and metrics. Since the GFCy is an unobservable concept, we use two methods to represent it: directly observable variables in center economies often linked to it, such as the VIX; and indirect manifestations, proxied by common dynamic factors extracted from actual capital flows. Our evidence seems mostly inconsistent with a significant and conspicuous GFCy; both methods combined rarely explain more than a quarter of the variation in capital flows. Succinctly, most variation in capital flows does not seem to be the result of common shocks nor stem from observables in a central country like the United States.

Series:

Working Paper No. 17/193

English

Publication Date:

September 1, 2017

ISBN/ISSN:

9781484316603/1018-5941

Stock No:

WPIEA2017193

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

67

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