Official Financial Flows, Capital Mobility, and Global Imbalances

Author/Editor:

Tamim Bayoumi ; Joseph E. Gagnon ; Christian Saborowski

Publication Date:

October 30, 2014

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

We use a cross-country panel framework to analyze the effect of net official flows (chiefly foreign exchange intervention) on current accounts. We find that net official flows have a large but plausible effect on current account balances. The estimated effects are larger with instrumental variables (42 cents to the dollar on average compared to 24 without instruments), reflecting a possible downward bias in regressions without instruments owing to an endogenous response of net official flows to private financial flows. We consistently find larger impacts of net official flows when international capital flows are restricted and smaller impacts when capital is highly mobile. A further result is that there is an important positive effect of lagged net official flows on current accounts that we believe operates through the portfolio balance channel.

Series:

Working Paper No. 14/199

Subject:

English

Publication Date:

October 30, 2014

ISBN/ISSN:

9781484380239/1018-5941

Stock No:

WPIEA2014199

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

45

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