Emerging Economies' Vulnerability to Changes in Capital Flows: The Role of Global and Local Factors
Kazuki Ueda and
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Yoshihiko Norimasa: Bank of Japan
Tomohiro Watanabe: Nippon Life Insurance Company
No 21-E-5, Bank of Japan Working Paper Series from Bank of Japan
This study uses panel quantile regression to examine the risk of capital outflows in times of stress (capital flows-at-risk, CFaR) for 16 emerging economies. Our analysis shows that changes in financial conditions in advanced economies and in the monetary policy stance of the United States affect the risk of large capital outflows for some countries. In particular, we find that tighter financial conditions in advanced economies during a phase when the U.S. monetary policy stance is changing significantly affect emerging economies' CFaR. Further, using government debt as a measure of emerging economies' structural vulnerability, we find that an increase in government debt substantially raises the risk of capital outflows in times of stress. Moreover, while in the case of debt investment, CFaR tend to be greater the higher the level of government debt, in the case of other investment (consisting mainly of bank lending), CFaR tend to increase when financial conditions in advanced economies deteriorate.
Keywords: Risk of Capital Outflows (CFaR: Capital Flows-at-Risk); Global Factors; Local Factors; Panel Quantile Regression; Relative Entropy (search for similar items in EconPapers)
JEL-codes: E52 F32 F34 F37 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cwa, nep-fdg, nep-mac, nep-mon, nep-opm and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:boj:bojwps:wp21e05
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