Working Paper: NBER ID: w18329
Authors: Kristin J. Forbes; Francis E. Warnock
Abstract: Forbes and Warnock (2012) identify episodes of extreme capital flow movements--surges, stops, flight, and retrenchment--and find that global factors, especially global risk, are significantly associated with extreme capital flow episodes whereas domestic macroeconomic characteristics and capital controls are less important. That analysis leads naturally to the question of which types of capital flows are driving the episodes and if debt- and equity-led episodes differ in material ways. After identifying debt- and equity-led episodes, we find that most episodes of extreme capital flow movements around the world are debt-led and the factors associated with debt-led episodes are similar to the factors behind episodes identified with aggregate capital flow data. In contrast, equity-led episodes are less frequent, more idiosyncratic, and differ in nature from other episodes.
Keywords: capital flows; debt; equity; global risk; financial crises
JEL Codes: F30; G01
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| global risk (F65) | extreme capital flow episodes (F32) |
| high global risk aversion (D81) | debt-led surges (F65) |
| high global risk aversion (D81) | debt-led stops (F65) |
| debt-led episodes (F65) | contagion effects (E44) |
| domestic growth shocks (O49) | debt-led stops (F65) |
| negative growth shocks (F69) | debt-led stops (F65) |
| positive growth shocks (O49) | debt-led surges (F65) |
| debt flows (F32) | global and domestic factors (F69) |
| equity-led episodes (D63) | lack of significant causal mechanisms (E65) |