Capital flow waves: Surges, stops, flight, and retrenchment

Kristin Forbes and Francis Warnock

Journal of International Economics, 2012, vol. 88, issue 2, 235-251

Abstract: This paper analyzes waves in international capital flows. We develop a new methodology for identifying episodes of extreme capital flow movements using data that differentiates activity by foreigners and domestics. We identify episodes of “surges” and “stops” (sharp increases and decreases, respectively, of gross inflows) and “flight” and “retrenchment” (sharp increases and decreases, respectively, of gross outflows). Our approach yields fundamentally different results than the previous literature that used measures of net flows. Global factors, especially global risk, are significantly associated with extreme capital flow episodes. Contagion, whether through trade, banking, or geography, is also associated with stop and retrenchment episodes. Domestic macroeconomic characteristics are generally less important, and we find little association between capital controls and the probability of having surges or stops driven by foreign capital flows. The results provide insights for different theoretical approaches explaining crises and capital flow volatility.

Keywords: Capital flows; Sudden stops; Bonanzas; Surges; Risk; Capital controls; Pull versus push (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (1040)

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Related works:
Chapter: Capital Flow Waves: Surges, Stops, Flight, and Retrenchment (2011)
Working Paper: Capital Flow Waves: Surges, Stops, Flight, and Retrenchment (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:88:y:2012:i:2:p:235-251

DOI: 10.1016/j.jinteco.2012.03.006

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