Working Paper: CEPR ID: DP12075
Authors: Eugenio Cerutti; Stijn Claessens; Andrew K. Rose
Abstract: This study quantifies the importance of a Global Financial Cycle (GFCy) for capital flows. We use a panel of 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 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 or stem from observables in a central country like the United States.
Keywords: Empirical; Data; Center Country; Panel; VIX; Equity; Bonds; FDI
JEL Codes: F32; F36; F65; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| VIX (measure of market volatility) (G17) | capital flows (F32) |
| global financial cycle (GFcy) (F65) | capital flows (F32) |