Working Paper: NBER ID: w17357
Authors: Marcel Fratzscher
Abstract: The causes of the 2008 collapse and subsequent surge in global capital flows remain an open and highly controversial issue. Employing a factor model coupled with a dataset of high-frequency portfolio capital flows to 50 economies, the paper finds that common shocks - key crisis events as well as changes to global liquidity and risk - have exerted a large effect on capital flows both in the crisis and in the recovery. However, these effects have been highly heterogeneous across countries, with a large part of this heterogeneity being explained by differences in the quality of domestic institutions, country risk and the strength of domestic macroeconomic fundamentals. Comparing and quantifying these effects shows that common factors ("push" factors) were overall the main drivers of capital flows during the crisis, while country-specific determinants ("pull" factors) have been dominant in accounting for the dynamics of global capital flows in 2009 and 2010, in particular for emerging markets.
Keywords: capital flows; global financial crisis; push factors; pull factors; emerging markets; advanced economies
JEL Codes: F21; F30; G11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| global shocks (F69) | capital flows (F32) |
| increase in global risk (F65) | reallocation of capital from emerging markets to advanced economies (F21) |
| increase in global risk (F65) | capital flowing into emerging markets (F21) |
| collapse of Lehman Brothers (F65) | capital outflows from emerging markets (F32) |
| collapse of Lehman Brothers (F65) | net inflows into advanced economies (F21) |
| country-specific factors (F29) | heterogeneity in capital flows (F32) |
| domestic factors (F55) | capital flows during recovery phase (F32) |
| shift from push factors to pull factors (F22) | capital flow dynamics (F32) |