The volatility of capital flows in emerging markets: Measures and determinants

Maria Sole Pagliari and Swarnali Ahmed Hannan

Journal of International Money and Finance, 2024, vol. 145, issue C

Abstract: Capital flow volatility is a concern for macroeconomic and financial stability. Nonetheless, literature is scarce in this topic. Our paper sheds light on this issue along two dimensions. First, using quarterly data for 33 emerging markets and developing economies, we introduce new estimates of volatility for total multilateral gross capital in- and outflows and key categories, based on the residuals of ARIMA models. We find that a combination of our proposed approach and the commonly used standard deviation best identifies sharp rises during episodes of heightened global risk aversion, thus underscoring the need for a multi-faceted approach to gauge capital flow volatility. Second, we perform panel regressions to understand the determinants of volatility using both ARIMA and standard deviation measures of volatility. While there are variations across different categories of capital flows, generally speaking we identify three main drivers: the US interest rates, global risk aversion, and domestic real GDP. Overall, our findings call for a richer set of volatility estimates, beyond standard deviation, and also show that the determinants of capital flow volatility could vary depending on the measurement approach and the category of flow under analysis.

Keywords: Volatility estimation; International flows; Push vs pull factors (search for similar items in EconPapers)
JEL-codes: C13 C33 C58 F32 F36 F40 (search for similar items in EconPapers)
Date: 2024
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Related works:
Working Paper: The Volatility of Capital Flows in Emerging Markets: Measures and Determinants (2017)
Working Paper: The Volatility of Capital Flows in Emerging Markets: Measures and Determinants (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:145:y:2024:i:c:s0261560624000822

DOI: 10.1016/j.jimonfin.2024.103095

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