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Capital flows at risk: Taming the ebbs and flows

R. Gaston Gelos, Lucyna Gornicka (), Robin Koepke, Ratna Sahay and Silvia Sgherri

Journal of International Economics, 2022, vol. 134, issue C

Abstract: We propose a new quantile regression framework to predict the entire future probability distribution of capital flows to emerging markets, based on changes in global financial conditions, domestic structural characteristics, and policies. The approach allows us to differentiate between the impact on the median versus the tails of the future predicted density of flows, and between short- and medium-term effects. We find that FX- and macroprudential interventions are effective in mitigating downside risks to portfolio flows stemming from adverse global shocks, while tightening of capital controls in response appears to be counterproductive. Good institutional frameworks are not able to shield countries from the increased volatility of portfolio flows in the immediate aftermath of global shocks, but can contribute to a more rapid bounce-back of foreign flows over the medium term. Our results highlight the limitations of the standard approach, which focuses only on the short-term behavior of average flows.

Keywords: Capital flows; Macroprudential policies; Foreign-exchange intervention; Capital controls; Emerging markets (search for similar items in EconPapers)
JEL-codes: E52 F32 F38 G28 (search for similar items in EconPapers)
Date: 2022
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Working Paper: Capital Flows at Risk: Taming the Ebbs and Flows (2021) Downloads
Working Paper: Capital Flows at Risk: Taming the Ebbs and Flows (2019) Downloads
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DOI: 10.1016/j.jinteco.2021.103555

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