Working Paper: CEPR ID: DP11096
Authors: Vincent Reinhart; Carmen M. Reinhart; Christoph Trebesch
Abstract: Capital flow and commodity cycles have long been connected with economic crises. Sparse historical data, however, has made it difficult to connect their timing. We date turning points in global capital flows and commodity prices across two centuries and provide estimates from alternative data sources. We then document a strong overlap between the ebb and flow of financial capital, the commodity price super-cycle, and sovereign defaults since 1815. The results have implications for today, as many emerging markets are facing a double bust in capital inflows and commodity prices, making them vulnerable to crises.
Keywords: capital flows; commodity prices; financial crises; sudden stops
JEL Codes: E3; E44; F44; F6; G01; N10; N20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| end of capital inflow episodes (F32) | increase in sovereign default risk (F34) |
| capital flow cycles (F32) | sovereign defaults (F34) |
| double bust in capital inflows and commodity prices (F32) | increase in sovereign defaults (F34) |
| capital inflow cycles (F21) | spikes in sovereign defaults (F34) |
| end of capital inflow bonanzas (F32) | spikes in new defaults (E32) |