Working Paper: NBER ID: w21958
Authors: Carmen M. Reinhart; Vincent 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; sovereign defaults
JEL Codes: E30; 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 |
|---|---|
| Capital flow cycles (F32) | Sovereign defaults (F34) |
| Commodity price swings (G13) | Sovereign defaults (F34) |
| Capital flow cycles (F32) | Commodity price swings (G13) |
| Peaks of new defaults (C62) | Double busts in capital and commodity markets (G19) |
| Capital flow bonanzas (F32) | Sovereign default risk (F34) |
| End of capital flow bonanzas (F32) | Increase in sovereign default risk (F34) |