Capital Flows are Fickle: Anytime, Anywhere

IMF Working Papers, August 22, 2013

Source details

Using a newly constructed database of gross and net capital flows since 1980 for a sample of nearly 150 countries, the paper finds that private capital flows are typically volatile for all countries, advanced or emerging, across all points in time.
Volatility holds across most types of flows, including bank, portfolio debt, and equity flows.
Advanced economies exhibit:
- Greater substitutability between types of inflows.
- Complementarity between gross inflows and outflows.
- These patterns reduce the volatility of their total net inflows despite higher volatility of the components.
Emerging markets do not display the same degree of substitutability and complementarity, contributing to higher volatility in net inflows relative to advanced economies.
Capital flows exhibit low persistence across all economies and across most types of flows.
Inflows tend to rise temporarily when global financing conditions are relatively easy.
Conclusion: Fickle capital flows are an unavoidable fact of life and require ongoing management and adaptation by policymakers across all countries.

Database: Gross and net capital flows since 1980.
Sample: Nearly 150 countries.
Types of flows analyzed: private capital flows including bank flows, portfolio debt flows, and equity flows.

Policymakers in both advanced and emerging economies need to manage and adapt to inherently volatile and low-persistence capital flows.
The temporary rise in inflows during periods of easy global financing conditions underscores the role of global factors in driving cross-border capital movements.
Differences in substitutability and complementarity of flow types across country groups imply that policy tools and macrofinancial management may need to be tailored to country-specific flow compositions and vulnerabilities.

Authors: John C Bluedorn, Rupa Duttagupta, Jaime Guajardo, Petia Topalova
Date: August 22, 2013
Pages: 37
Volume: 2013
Issue: 183
Series: Working Paper No. 2013/183
DOI: https://doi.org/10.5089/9781484389041.001
Stock No: WPIEA2013183
ISBN: 9781484389041
ISSN: 1018-5941
Subject keywords: Balance of payments, Capital flows, Capital inflows, Emerging and frontier financial markets, Financial markets, Foreign direct investment, Private capital flows
Descriptive keywords: advanced economy, capital, capital flow, Capital flows, Capital inflows, comovement, economy, economy group, Emerging and frontier financial markets, emerging market, FDI inflow, Foreign direct investment, Global, global factors, growth performance, international capital flows, net capital, net capital flow, persistence, portfolio debt, Private capital flows, volatility, WP

IMF Working Paper — "Capital Flows are Fickle: Anytime, Anywhere", Working Paper No. 2013/183, August 22, 2013.