Working Paper: NBER ID: w26851
Authors: Kristin J. Forbes; Francis E. Warnock
Abstract: Has the occurrence of “extreme capital flow movements”—episodes of sudden surges, stops, flight and retrenchment—changed since the Global Financial Crisis (GFC)? This paper addresses this question by updating and building on the dataset and methodology introduced in Forbes and Warnock (2012) to calculate the occurrence of sharp capital flow movements by foreigners and domestics into and out of individual countries. The results suggest that the occurrence of these extreme capital flow movements has not increased since the GFC. The drivers of these episodes, however, appear to have changed since the GFC. Extreme capital flow movements are less correlated with changes in global risk, and are more difficult to explain with basic global, regional and domestic variables. What used to be large global “waves” in international capital flows have more recently become idiosyncratic “ripples”.
Keywords: capital flows; financial crisis; global financial cycle; monetary policy
JEL Codes: F3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| extreme capital flow episodes (F32) | incidence of extreme capital flow episodes (F32) |
| post-GFC period (F65) | incidence of sudden stops and retrenchments (J63) |
| global risk measures (F65) | extreme capital flow episodes (F32) |
| debt-led surges (F65) | share of debt-led surges (F65) |
| tighter macroprudential regulations (G28) | volatility of capital flows (F32) |
| accommodative monetary policy (E52) | capital flow volatility (F32) |