Working Paper: NBER ID: w22819
Authors: Graciela L. Kaminsky
Abstract: The ongoing slowdown in international capital flows has brought again to the attention the booms and bust cycles in international borrowing. Many suggest that capital flow bonanzas are excessive, ending in crises. One of the most frequently mentioned culprits are the cycles of monetary easing and tightening in the financial centers. More recently, the 2008 Subprime Crisis in the United States has also been blamed for the retrenchment in capital flows to both developed and developing countries. To further understand international capital flow cycles, I construct a new database on capital flows spanning the first episode of financial globalization from 1820 to 1931. During this episode, monetary policy in the financial center is constrained by the adherence to the Gold Standard, thus providing a benchmark for global cycles in the absence of an active role of central banks in the financial centers. Also, panics in the financial center are rare disasters that can only be studied in this longer episode of financial globalization. This paper presents the historical data with an example for Latin America.
Keywords: International Capital Flows; Financial Crises; Monetary Policy; Latin America
JEL Codes: F30; F34; F65
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| monetary easing (E52) | capital flow bonanzas (F32) |
| capital flow bonanzas (F32) | subsequent crises (G01) |
| financial center panics (F65) | international borrowing (F34) |
| lack of deleveraging during bust periods (F65) | structural issues in debt management (H63) |