## _wp1460 ## Source details **Canonical URL:** [_wp1460](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2014/_wp1460.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2014/_wp1460.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2014/_wp1460.pdf.json) --- ### Empirical objective and scope - Objective: Examine the dynamic effect of global financial shocks on net and gross capital flows into EMEs, and the extent to which domestic investors offset foreign investor behavior. - Sample: 38 emerging market economies, 1990Q1-2012Q4. - Key global shocks analyzed: global uncertainty (VIX), short-term U.S. real interest rate (Federal Funds rate, INT), long-term U.S. real interest rate (10-year Treasury bond rate, INT_10Y). - Other controls: U.S. real GDP growth (G) and (log difference of) broad commodity price index (COMMP). - Definitions: gross inflows = net movement in international liabilities; gross outflows = net movement in international assets. Flows are annualized and expressed in percent of trend GDP (in U.S. dollars). ### Empirical approach and identification - Model: First-order panel vector autoregressive (PVAR) with country fixed effects and forward mean-differencing (Helmert procedure); estimation via GMM. - Variable vectors: - Net flows specification: {G, VIX, INT, INT_10Y, COMMP, NKF_i}. - Gross flows specification: {G, VIX, INT, INT_10Y, COMMP, GKI_i, GKO_i}. - Real interest rates: computed using forward-looking inflation expectations at 1- and 10-year horizons; first differences used for stationarity. - Identification: Choleski decomposition with ordering {G, VIX, INT, INT_10Y, COMMP, NKF} and {G, VIX, INT, INT_10Y, COMMP, GKI, GKO}. - Confidence intervals: Monte Carlo simulations with 700 draws to compute 5th and 95th percentiles of impulse responses. ### Main quantitative findings - VIX (global uncertainty) shocks - One standard deviation VIX shock ~ "about 5 points". - Gross inflows: a one standard deviation VIX shock leads to an average decline in gross inflows of about 1½ percent of annual GDP over six quarters. - Gross outflows: decline broadly similar in magnitude to gross inflows (asset repatriation by residents). - Net flows: very limited negative impact on net capital flows to EMEs because gross outflow decline largely offsets gross inflow retrenchment. - Regional heterogeneity: Latin America experiences a particularly large negative impact on net inflows (gross inflow decline about twice as large as in the benchmark specification), only partially compensated by asset repatriation. - Short-term U.S. interest rate (Federal Funds) shocks - One standard deviation shock ~ "about 0.7 percentage points" (figures use 0.66 percentage points). - Net flows: a one standard deviation shock leads to a cumulative decline in net capital inflows of about 0.2 percent of annual GDP over two quarters. - Gross flows: decline in gross inflows and an increase in gross outflows (residents increase foreign asset accumulation). - Domestic investors: do not play a meaningful stabilizing role; residents and non-residents shift capital in similar directions. - Regional differences: negative impact on net flows is larger in emerging Europe, driven mainly by a large fall in gross inflows. - Long-term U.S. interest rate (10-year Treasury) shocks - Example sensitivity: a 100 basis points increase in the 10-year Treasury bond rate is used illustratively; figure responses reported to a one standard deviation shock (figures use 0.23 percentage points). - Gross inflows: cumulative decline of 1.8 percent of GDP over six quarters in response to an increase in the 10-year rate (example of a 100 basis points change discussed). - Gross outflows: residents repatriate foreign assets (decline in gross outflows), but the repatriation is substantially smaller than the decline in gross inflows. - Net flows: net capital outflows are implied (negative net impact) because repatriation only partially offsets non-resident retrenchment. - Policy implication for QE exit: rise in long-term U.S. interest rates will produce meaningful net outflows from EMEs if it reflects a pure U.S. interest rate shock; if the rise reflects improved U.S. economic activity, net effects on EMEs are more moderate. - U.S. GDP growth and commodity price shocks (controls) - U.S. real GDP growth: a positive disturbance leads to net capital inflows to EMEs despite associated higher U.S. interest rates—implying real linkages can outweigh financial-channel effects. The net inflow response reflects repatriation by residents larger than the fall in non-resident inflows. - Commodity prices: positive shock tends to increase gross capital inflows (foreign investors buy more domestic assets); net inflows also rise, though less than gross inflows because residents increase net purchases of external assets. ### Heterogeneity and extensions - Financial integration (Lane and Milesi-Ferretti measure: sum of foreign assets and liabilities as percent of GDP) - More financially integrated economies: - Uncertainty shocks: asset repatriation by residents is much larger and fully offsets gross inflow declines (net flows unaffected). - Short-term rate shocks: negative impact on net inflows is larger, driven by a larger increase in gross outflows (residents sensitive to short-term rate shocks). - Long-term rate shocks: gross flows more sensitive on impact; asset repatriation is relatively small so net inflows decline. - Less financially integrated economies: - Uncertainty shocks: sizeable impact on net inflows; limited offsetting by residents. - Responses are generally smaller in magnitude for both gross inflows and outflows. - Capital account openness (Quinn et al. index) - Results broadly similar to the financial integration split. - More open economies: uncertainty shocks see full offset via resident repatriation; after short-term rate shocks residents increase foreign asset purchases (no offsetting repatriation). - Less open economies: qualitatively similar but smaller magnitudes. - Types of flows: FDI vs non-FDI (non-FDI includes portfolio and other debt creating flows) - Non-FDI flows are much more sensitive to global shocks than FDI. - Uncertainty shocks: similar qualitative responses for FDI and non-FDI, but much larger magnitudes for non-FDI. - Short-term rate shocks: non-FDI shows declines in gross inflows and increases in gross outflows; FDI responses are insignificant. - Long-term rate shocks: non-FDI mirrors aggregate results (declines in net and gross inflows; gross outflows fall modestly). FDI gross flows show much lower sensitivity; net FDI flows response is insignificant. - U.S. growth shocks: non-FDI net inflows increase; net FDI inflows respond negatively. - Regional perspectives (Asia, Europe, Latin America, Other) - Uncertainty shocks: largest net inflow impact in Latin America (and to a lesser extent Asia); Emerging Europe shows no significant effect. - Short-term rate shocks: negative impact on net flows across regions, particularly large in Emerging Europe (driven by gross inflow declines). - Long-term rate shocks: negative impact on net inflows in all regions except Emerging Europe; Latin America shows especially large net outflows due to large gross inflow declines and limited resident repatriation. ### Key interpretations and policy implications - Domestic investors can play a stabilizing role by repatriating foreign assets, but the degree of offset depends critically on the type of global shock: - Strong offset for global uncertainty (VIX) shocks in many EMEs, especially financially integrated ones, but Latin America is an exception. - Little or no offset for short-term U.S. interest rate shocks; residents and non-residents often move in the same direction. - Partial offset for long-term U.S. interest rate shocks; repatriation mitigates but does not fully offset foreign investor retrenchment, implying non-trivial net outflows. - Policy relevance for the Fed’s exit from QE: - If the exit raises long-term U.S. rates mainly via improved U.S. economic activity, the impact on EMEs is likely moderate (positive U.S. growth can attract flows). - If the rise in long-term rates reflects a pure monetary/interest-rate shock, EMEs face larger net outflows because resident repatriation only partially offsets foreign retrenchment. ### Robustness, event analysis, and selected numeric impulse-response bounds - Robustness: results are robust to alternative model specifications, including additional lags and alternative Choleski orderings within international variables and gross flow series. - Appendix 1 event analysis (38 EMEs): uncertainty (VIX) spikes show marked deceleration in net inflows driven by reversal in gross inflows; gross outflows provide offsetting role only in some cases. No clear pattern for Fed Funds or 10-year rate shocks in the simple event analysis. - Selected numeric impulse-response bounds (benchmark model, horizons 0–6 quarters; quoted lower and upper bounds): - Response of NKF to VIX shock: lower bound -0.8326, upper bound 0.3753. - Response of NKF to INT shock: lower bound -0.6970, upper bound 0.1771. - Response of NKF to INT_10Y shock: lower bound -0.6051, upper bound 0.0481. - Response of GKI to VIX shock: lower bound -2.1066, upper bound 0.0000. - Response of GKI to INT shock: lower bound -0.4071, upper bound 0.3414. - Response of GKI to INT_10Y shock: lower bound -0.7679, upper bound 0.0120. - Response of GKO to VIX shock: lower bound -1.8351, upper bound 0.0000. - Response of GKO to INT shock: lower bound -0.0342, upper bound 0.5909. - Response of GKO to INT_10Y shock: lower bound -0.3462, upper bound 0.1114. - Response of NKF to USGDP shock: lower bound -0.2138, upper bound 0.5584. - Response of GKI to USGDP shock: lower bound -0.7818, upper bound 0.4827. - Response of GKO to USGDP shock: lower bound -0.9881, upper bound 0.3920. - Response of NKF to COMMP shock: lower bound -0.4788, upper bound 0.5434. - Response of GKI to COMMP shock: lower bound -0.1213, upper bound 0.9994. - Response of GKO to COMMP shock: lower bound 0.0000, upper bound 0.7752. - Selected non-FDI vs FDI numeric bounds (responses to USGDP shock = 0.6 percentage points; COMMP shock = 7.5 percentage points): - Response of NKF_NFDI to USGDP shock: lower bound -0.0665, upper bound 0.6853. - Response of NKF_NFDI to COMMP shock: lower bound -0.5068, upper bound 0.3785. - Response of GKI_NFDI to USGDP shock: lower bound -0.7016, upper bound 0.2953. - Response of GKI_NFDI to COMMP shock: lower bound 0.0000, upper bound 0.5169. - Response of GKO_NFDI to USGDP shock: lower bound -0.3577, upper bound 0.4795. - Response of GKO_NFDI to COMMP shock: lower bound -0.2422, upper bound 0.7379. - Response of NKF_FDI to USGDP shock: lower bound -0.2794, upper bound 0.0774. - Response of NKF_FDI to COMMP shock: lower bound -0.0772, upper bound 0.2578. - Response of GKI_FDI to USGDP shock: lower bound -0.4410, upper bound 0.1577. - Response of GKI_FDI to COMMP shock: lower bound -0.0658, upper bound 0.3426. - Response of GKO_FDI to USGDP shock: lower bound -0.5826, upper bound 0.1776. - Response of GKO_FDI to COMMP shock: lower bound 0.0000, upper bound 0.3805. *Source: _wp1460 - References (IMF authors' calculations and cited literature).* ### References ............................................................................................................. ### _wp1460 - References ### Figures - 1: Global Financial Shocks, 1990–2012 - 2: Gross Capital Flows in Selected Countries, 2006–12 - 3: Response of Net Capital Flows to Global Financial Shocks - 4: Response of Gross Capital Flows to Global Financial Shocks - 5: Response of Gross Capital Flows to Other Foreign Shocks - 6: Response of Capital Flows to Global Financial Shocks: The Role of Financial Integration - 7: Response of Capital Flows to Global Financial Shocks: The Role of Capital Account Openness - 8: Response of Capital Flows to Global Financial Shocks: Types of Flows - 9: Response of Capital Flows to Global Financial Shocks: A Regional Perspective ### Tables - 1: Impact of Global Financial Shocks on Capital Flows to EMEs - 2: Descriptive Statistics ### Appendix 1. A Simple Event Ananlysis - Tables - A1: Episodes of Global Financial Shocks, 1990–2012 - Figures - A1.1: Capital Flows to Emerging Markets around Negative Global Financial Shock Episodes - A1.2: Capital Flows to Emerging Markets around Global Uncertainty Shock Episodes - A1.3: Capital Flows to Emerging Markets around Fed Fund Rate Shock Episodes - A1.4: Capital Flows to Emerging Markets around US 10-year Interest Rate Shock Episodes - A1.5: Global Financial Conditions, US Output and Commodity Prices, 1990–2012 *Source: _wp1460 - References (PDF).* ### Appendix 2. Additional Tables and Figures ### Appendix 2. Additional Tables and Figures ### Empirical objective and scope - Objective: Examine the dynamic effect of global financial shocks on net and gross capital flows into EMEs, and the extent to which domestic investors offset foreign investor behavior. - Sample: 38 emerging market economies, 1990Q1-2012Q4. - Key global shocks analyzed: global uncertainty (VIX), short-term U.S. real interest rate (Federal Funds rate, INT), long-term U.S. real interest rate (10-year Treasury bond rate, INT_10Y). - Other controls: U.S. real GDP growth (G) and (log difference of) broad commodity price index (COMMP). - Definitions: gross inflows = net movement in international liabilities; gross outflows = net movement in international assets. Flows are annualized and expressed in percent of trend GDP (in U.S. dollars). ### Empirical approach and identification - Model: First-order panel vector autoregressive (PVAR) with country fixed effects and forward mean-differencing (Helmert procedure) to address bias from fixed effects and lags; estimation via GMM. - Variable vectors: - Net flows specification: {G, VIX, INT, INT_10Y, COMMP, NKF_i}. - Gross flows specification: {G, VIX, INT, INT_10Y, COMMP, GKI_i, GKO_i}. - Real interest rates: computed using forward-looking inflation expectations at 1- and 10-year horizons; first differences used for stationarity. - Identification: Choleski decomposition with ordering {G, VIX, INT, INT_10Y, COMMP, NKF} and {G, VIX, INT, INT_10Y, COMMP, GKI, GKO}. - Confidence intervals: Monte Carlo simulations with 700 draws to compute 5th and 95th percentiles of impulse responses. ### Main quantitative findings - VIX (global uncertainty) shocks - One standard deviation VIX shock ~ "about 5 points". - Gross inflows: a one standard deviation VIX shock leads to an average decline in gross inflows of about 1½ percent of annual GDP over six quarters. - Gross outflows: decline broadly similar in magnitude to gross inflows (asset repatriation by residents). - Net flows: very limited negative impact on net capital flows to EMEs because gross outflow decline largely offsets gross inflow retrenchment. - Regional heterogeneity: Latin America experiences a particularly large negative impact on net inflows (gross inflow decline about twice as large as in the benchmark specification), only partially compensated by asset repatriation. - Short-term U.S. interest rate (Federal Funds) shocks - One standard deviation shock ~ "about 0.7 percentage points" (figures use 0.66 percentage points). - Net flows: a one standard deviation shock leads to a cumulative decline in net capital inflows of about 0.2 percent of annual GDP over two quarters. - Gross flows: decline in gross inflows and an increase in gross outflows (residents increase foreign asset accumulation). - Domestic investors: do not play a meaningful stabilizing role; residents and non-residents shift capital in similar directions. - Regional differences: negative impact on net flows is larger in emerging Europe, driven mainly by a large fall in gross inflows. - Long-term U.S. interest rate (10-year Treasury) shocks - Example sensitivity: a 100 basis points increase in the 10-year Treasury bond rate is used illustratively; figure responses reported to a one standard deviation shock (figures use 0.23 percentage points). - Gross inflows: cumulative decline of 1.8 percent of GDP over six quarters in response to an increase in the 10-year rate (example of a 100 basis points change discussed). - Gross outflows: residents repatriate foreign assets (decline in gross outflows), but the repatriation is substantially smaller than the decline in gross inflows. - Net flows: net capital outflows are implied (negative net impact) because repatriation only partially offsets non-resident retrenchment. - Policy implication for QE exit: rise in long-term U.S. interest rates will produce meaningful net outflows from EMEs if it reflects a pure U.S. interest rate shock; if the rise reflects improved U.S. economic activity, net effects on EMEs are more moderate. - U.S. GDP growth and commodity price shocks (controls) - U.S. real GDP growth: a positive disturbance leads to net capital inflows to EMEs despite associated higher U.S. interest rates—implying real linkages can outweigh financial-channel effects. The net inflow response reflects repatriation by residents larger than the fall in non-resident inflows. - Commodity prices: positive shock tends to increase gross capital inflows (foreign investors buy more domestic assets); net inflows also rise, though less than gross inflows because residents increase net purchases of external assets. ### Heterogeneity and extensions - Financial integration (Lane and Milesi-Ferretti measure: sum of foreign assets and liabilities as percent of GDP) - More financially integrated economies: - Uncertainty shocks: asset repatriation by residents is much larger and fully offsets gross inflow declines (net flows unaffected). - Short-term rate shocks: negative impact on net inflows is larger, driven by a larger increase in gross outflows (residents sensitive to short-term rate shocks). - Long-term rate shocks: gross flows more sensitive on impact; asset repatriation is relatively small so net inflows decline. - Less financially integrated economies: - Uncertainty shocks: sizeable impact on net inflows; limited offsetting by residents. - Responses are generally smaller in magnitude for both gross inflows and outflows. - Capital account openness (Quinn et al. index) - Results broadly similar to the financial integration split. - More open economies: uncertainty shocks see full offset via resident repatriation; after short-term rate shocks residents increase foreign asset purchases (no offsetting repatriation). - Less open economies: qualitatively similar but smaller magnitudes. - Types of flows: FDI vs non-FDI (non-FDI includes portfolio and other debt creating flows) - Non-FDI flows are much more sensitive to global shocks than FDI. - Uncertainty shocks: similar qualitative responses for FDI and non-FDI, but much larger magnitudes for non-FDI. - Short-term rate shocks: non-FDI shows declines in gross inflows and increases in gross outflows; FDI responses are insignificant. - Long-term rate shocks: non-FDI mirrors aggregate results (declines in net and gross inflows; gross outflows fall modestly). FDI gross flows show much lower sensitivity; net FDI flows response is insignificant. - U.S. growth shocks: non-FDI net inflows increase; net FDI inflows respond negatively. - Regional perspectives (Asia, Europe, Latin America, Other) - Uncertainty shocks: largest net inflow impact in Latin America (and to a lesser extent Asia); Emerging Europe shows no significant effect. - Short-term rate shocks: negative impact on net flows across regions, particularly large in Emerging Europe (driven by gross inflow declines). - Long-term rate shocks: negative impact on net inflows in all regions except Emerging Europe; Latin America shows especially large net outflows due to large gross inflow declines and limited resident repatriation. ### Key interpretations and implications - Domestic investors can play a stabilizing role by repatriating foreign assets, but the degree of offset depends critically on the type of global shock: - Strong offset for global uncertainty (VIX) shocks in many EMEs, especially financially integrated ones, but Latin America is an exception. - Little or no offset for short-term U.S. interest rate shocks; residents and non-residents often move in the same direction. - Partial offset for long-term U.S. interest rate shocks; repatriation mitigates but does not fully offset foreign investor retrenchment, implying non-trivial net outflows. - Policy relevance for the Fed’s exit from QE: - If the exit raises long-term U.S. rates mainly via improved U.S. economic activity, the impact on EMEs is likely moderate (positive U.S. growth can attract flows). - If the rise in long-term rates reflects a pure monetary/interest-rate shock, EMEs face larger net outflows because resident repatriation only partially offsets foreign retrenchment. - Robustness: results are robust to alternative model specifications, including additional lags and alternative Choleski orderings within international variables and gross flow series. *Source: Authors' calculations presented in Appendix 2 (Additional Tables and Figures).* ### References ### _wp1460 - References ### References (selected) - Adler, G. and C. E. Tovar, 2013, “Global Financial Shocks and their Economic Impact on Emerging Market Economies,” Journal of International Commerce, Economics and Policy, Vol. 4, No. 2. - Adler, G., and S. Sosa, 2013, “Intraregional Spillovers in South America: Is Brazil Systemic After All?, The World Economy, DOI: 10.1111/twec.12094. - Arellano, M., and O. Bover, 1995, “Another look at the instrumental variable estimation of error component models,” Journal of Econometrics, vol. 68, pages 29–51. - Bloom, N., 2009, “The Impact of Uncertainty Shocks,” Econometrica, 77, 3, 623–85. - Bluedorn, J. C., R. Duttagupta, J. Guajardo, and P. Topalova, 2013, “Capital Flows are Fickle: Anytime, Anywhere,” International Monetary Fund, Working Paper No. 13/183. - Broner, F., T. Didier, A. Erce and S. Schmukler, 2013, “Gross capital flows: Dynamics and crises”, Journal of Monetary Economics, vol. 60, issue 1, pages 113-133. - Bruno, V., and H. Shin, 2012, “Capital flows, cross-border banking and global liquidity,” NBER Working Paper 19038. - Calderón, C. and M. Kubota, 2013, “Sudden stops: Are global and local investors alike?,” Journal of International Economics, vol. 89 (1), pages 122–142. - Calvo, G. A., 1998, "Capital Flows and Capital-Market Crises: The Simple Economics of Sudden Stops," Journal of Applied Economics 1 (1): 35–54. - Calvo, G. A., A. Izquierdo, L.F. Mejía, 2004, "On the Empirics of Sudden Stops: the Relevance of Balance-Sheet Effects," NBER Working Paper No. 10520. - Calvo, G. A. and C. Reinhart, 2000, "When Capital Inflows Come to a Sudden Stop: Consequences and Policy Options," In Kenen, P.; Swoboda, A. Reforming the International Monetary and Financial System. Washington, DC: International Monetary Fund. - Carriere-Swallow, Y. and L. F. Céspedes (2011), ‘The Impact of Uncertainty Shocks in Emerging Economies’, Working Paper No. 646 (Santiago: Central Bank of Chile). - Cowan, K., J. De Gregorio, A. Micco, and C. Neilson, 2008, “Financial diversification, sudden stops, and sudden starts,” in Cowan, K., S. Edwards, and R. Valdes, (Eds.), Current Account and External Finance. Central Bank of Chile, Santiago, Chile, pp. 159–194. - Dornbusch, R. and A. Werner, 1994, "Mexico: Stabilization, Reform and No Growth," Brookings Papers on Economic Activity 1: 253–316. - Dornbusch, R., I. Goldfajn, and R. O. Valdés, 1995, "Currency Crises and Collapses," Brookings Papers on Economic Activity 2: 219–293. - Edwards, S., 2004, "Thirty Years of Current Account Imbalances, Current Account Reversals and Sudden Stops," NBER Working Paper No. 10276. - Forbes, K. and F. Warnock, 2012, “Capital flow waves: surges, stops, flight and retrenchment,” Journal of International Economics, vol. 88 (2), pages 235–251. - International Monetary Fund, 2013, “Fall 2013 World Economic Outlook,” Washington D.C. - Lane, P. and G. Milesi-Ferretti, 2007, “The external wealth of nations mark ii: revised and extended estimates of foreign assets and liabilities, 1970–2004,” Journal of International Economics, vol. 73, pages 223–250. - Love, I. and L. Zicchino, 2006, “Financial development and dynamic investment behavior: Evidence from panel VAR,” The Quarterly Review of Economics and Finance, vol. 46, pages 190–210. - Milesi-Ferretti, G. and C. Tille, 2010, “The great retrenchment: international capital flows during the global financial crisis,” Economic Policy, vol. 66, pages 285–330. - Quinn, D., M. Schindler and A. M. Toyoda, 2011, “Assessing Measures of Financial Openness and Integration,” IMF Economic Review vol. 59, No. 3. ### Appendix 1. A Simple Event Analysis — Key findings and methodology - Sample: 38 EMEs. - Method: - Study net and gross capital flows for sample of 38 EMEs, centering them at the quarter of the largest variation of the VIX, the U.S. Federal Fund rate, and the U.S. 10-year Treasury bond interest rate within the shock episodes depicted in Figure 1 (details in Table A.1.1). - Focus primarily on adverse shocks (sharp increases in each variable). - Flows are demeaned to exclude possible country-specific level effects. - Main findings: - No discernible pattern for capital flows around global financial shock episodes except for uncertainty shocks. - Uncertainty shocks (VIX spikes) appear to affect capital flows to EMEs significantly: - Marked deceleration in net inflows (upper-left chart, Figure A1.1). - Decline in net inflows largely driven by reversal in gross inflows. - Gross outflows provide a meaningful offsetting role only in some cases (illustrated by drop in the line corresponding to the 25th percentile). - No evidence of acceleration in gross outflows — suggests asymmetric behavior of residents who, in some cases, help offset reversals in gross capital inflows. - For U.S. interest rate shocks (short- and long-term), no clear pattern in response of capital flows was found. - Interpretation and caveats: - Joint occurrence of shocks (global financial conditions correlate with economic activity and commodity prices) complicates interpretation (see Figure A1.5). - Importance of disentangling financial shocks from other (real) external shocks in a multivariate setting. - Correlation is relevant also for VIX shocks; however, effects of economic activity and financial shocks on EME flows are likely of the same sign for uncertainty shocks but not necessarily for U.S. interest rate shocks. - Notes: - Negative episodes refers to increases in global uncertainty or interest rates. - Series are demeaned. Gross outflows (inflows) refer to asset (liability) side flows — positive numbers denote outflows (inflows). ### Appendix 1. Table A1. Episodes of Global Financial Shocks, 1990-2012 (excerpt) - Quarterly-based episodes table provided with quarterly markers such as: - 1990q1, 1990q4, 1994q2, 1995q2, 1994q2, 1997q4, 1997q4, 2000q3, 2001q1, 1999q2, 2000q1, 1998q3, 1999q1, 2004q4, 2006q1, 2005q4, 2006q2, 2002q3, 2003q1, 2008q4, 2009q2, 2011q3, 2011q4. - Table notes: Based on quarterly averages. In percent, except for the VIX index. ### Appendix 1. Figures — Key labels and notes - Figure A1.1: Capital Flows to Emerging Markets around Negative Global Financial Shock Episodes (Percent of GDP). Sources: IMF's Balance of Payments Statistics and authors' calculations. - Figures A1.2–A1.4: Regional breakdowns (Latin America, Asia, Europe, Other) for Gross Inflows and Gross Outflows around Uncertainty, Fed Funds Rate, and U.S. 10-year Treasury Rate shock episodes. - Figure A1.5: Global Financial Conditions, U.S. Output, and Commodity Prices, 1990–2012 (Percent, unless otherwise stated). Sources: HaverAnalytics; and Cleveland Federal Reserve. - Notes include: 1 Chicago Board Options Exchange Market Volatility Index. 2 Real interest rates based on forward-looking (1 and 10 year) inflation expectations. 3 IMF broad commodity price index. Annual percentage change. ### Appendix 2. Additional Tables and Figures — Variables and sample - Table A2.1. List of Variables (abbreviations, definitions, details, sources) — selected entries: - GKIGross capital inflows: Total liabilities in terms of trend nominal GDP in dollar: (FDI_Liab + PI_Liab + OI_Liab)/GDP; Forward demeaned (Helmert transformation). Source: IMF's Balance of Payment BP6TS, and authors' calculations. - GKOGross capital outflows: Total Assets in terms of trend nominal GDP in dollar: (FDI_Assets + PI_Assets + OI_Assets)/GDP; Forward demeaned (Helmert transformation). Source: IMF's Balance of Payment BP6TS, and authors' calculations. - NKFNet capital Flows: Net liabilities flows in terms of trend nominal GDP in dollar : GKI - GKO; Forward demeaned (Helmert transformation). Source: IMF's Balance of Payment BP6TS, and authors' calculations. - GKO_FDI Direct investment abroad: Net acquisition of financial assets : FDI, in terms of trend nominal GDP in dollar; Forward demeaned (Helmert transformation). Source: IMF's Balance of Payment BP6TS, and authors' calculations. - GDP Nominal detrend GDP, in USD Hodrick–Prescott filter. Source: IMF WEO. - VIX VIX: Forward demeaned (Helmert transformation). Source: WSJ. - INT Real Federal Fund rate: Federal Fund rate deflated by expected inflation. Source: IFTS, Cleveland FED. - INT_10Y Real 10 year US government bonds: 10-year US Treasury bond interest rate deflated by 10-year inflation expectations. Source: IFTS, Cleveland FED. - COMMP Broad Index of real commodities prices: Forward demeaned by Helmert transformation. Source: WEO. - USGDP Real US GDP Growth: Forward demeaned by Helmert transformation. Source: WEO. - Dum_IIP Degree of financial integration based on International investment position (IIP): Take value 1 if IIP in terms of GDP of the country is greater than or equal to the median of the sample. Source: Lane and Milesi-Ferretti updated database. - Dum_kapoen, Dum_kao, Dum_kai: Degree of openness on net capital account / capital outflows / capital inflows — definitions based on median of sample and Chinn-Ito Index. - Table A2.2. Sample of Countries (IFS codes and country names) — includes 38 EMEs such as: - 213 Argentina; 223 Brazil; 233 Colombia; 228 Chile; 924 China, P.R.: Mainland; 534 India; 536 Indonesia; 548 Malaysia; 273 Mexico; 283 Panama; 293 Peru; 566 Philippines; 199 South Africa; 186 Turkey; 299 Venezuela, R.B.; 582 Vietnam; 968 Romania; 922 Russian Federation; 728 Namibia; 964 Poland; 941 Latvia; 946 Lithuania; 962 Macedonia; 911 Armenia; 913 Belarus; 238 Costa Rica; 258 Guatemala; 924 China (listed earlier); 439 Jordan; 916 Kazakhstan; 944 Hungary; 564 Pakistan; 288 Paraguay; 298 Uruguay; 578 Thailand; 456 Saudi Arabia. - Note: Includes countries classified as emerging and developing countries according to the IMF's World Economic Outlook classification. ### Appendix 2. Impulse response results (selected numeric responses) - Benchmark model: Impulse Responses (time horizon in quarters, horizon 0 to 6 shown in figures) - Response of NKF to VIX shock: lower bound -0.8326, upper bound 0.3753. - Response of NKF to INT shock: lower bound -0.6970, upper bound 0.1771. - Response of NKF to INT_10Y shock: lower bound -0.6051, upper bound 0.0481. - Response of GKI to VIX shock: lower bound -2.1066, upper bound 0.0000. - Response of GKI to INT shock: lower bound -0.4071, upper bound 0.3414. - Response of GKI to INT_10Y shock: lower bound -0.7679, upper bound 0.0120. - Response of GKO to VIX shock: lower bound -1.8351, upper bound 0.0000. - Response of GKO to INT shock: lower bound -0.0342, upper bound 0.5909. - Response of GKO to INT_10Y shock: lower bound -0.3462, upper bound 0.1114. - Response of NKF to USGDP shock: lower bound -0.2138, upper bound 0.5584. - Response of GKI to USGDP shock: lower bound -0.7818, upper bound 0.4827. - Response of GKO to USGDP shock: lower bound -0.9881, upper bound 0.3920. - Response of NKF to COMMP shock: lower bound -0.4788, upper bound 0.5434. - Response of GKI to COMMP shock: lower bound -0.1213, upper bound 0.9994. - Response of GKO to COMMP shock: lower bound 0.0000, upper bound 0.7752. - Response of USGDP to USGDP shock: lower bound -0.1325, upper bound 2.5324. - Response of VIX to VIX shock: lower bound -0.4167, upper bound 5.1129. - Response of INT to INT shock: lower bound -0.0617, upper bound 0.6719. - Response of INT_10Y to INT_10Y shock: lower bound -0.0081, upper bound 0.2357. - Response of COMMP to COMMP shock: lower bound -0.0079, upper bound 0.0768. - Figure A2.2: Response of gross capital flows to other foreign shocks — types of flows. - Response to a one standard deviation shock to U.S. real GDP growth (0.6 percentage points) and commodity prices (7.5 percentage points). Time horizon in quarters. - Selected numeric bounds for Non-FDI and FDI components: - Response of NKF_NFDI to USGDP shock: lower bound -0.0665, upper bound 0.6853. - Response of NKF_NFDI to COMMP shock: lower bound -0.5068, upper bound 0.3785. - Response of GKI_NFDI to USGDP shock: lower bound -0.7016, upper bound 0.2953. - Response of GKI_NFDI to COMMP shock: lower bound 0.0000, upper bound 0.5169. - Response of GKO_NFDI to USGDP shock: lower bound -0.3577, upper bound 0.4795. - Response of GKO_NFDI to COMMP shock: lower bound -0.2422, upper bound 0.7379. - Response of NKF_FDI to USGDP shock: lower bound -0.2794, upper bound 0.0774. - Response of NKF_FDI to COMMP shock: lower bound -0.0772, upper bound 0.2578. - Response of GKI_FDI to USGDP shock: lower bound -0.4410, upper bound 0.1577. - Response of GKI_FDI to COMMP shock: lower bound -0.0658, upper bound 0.3426. - Response of GKO_FDI to USGDP shock: lower bound -0.5826, upper bound 0.1776. - Response of GKO_FDI to COMMP shock: lower bound 0.0000, upper bound 0.3805. *Source: _wp1460 - References (IMF authors' calculations and cited literature).* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2014/_wp1460.pdf_