Capital Flows at Risk: Taming the Ebbs and Flows

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

No 15842, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The volatility of capital flows to emerging markets continues to pose challenges to policymakers. In this paper, 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 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. However, they do contribute to a more rapid bounce-back of foreign flows over the medium term.

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: 2021-02
New Economics Papers: this item is included in nep-cba, nep-cwa, nep-mac, nep-mon, nep-opm and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Capital flows at risk: Taming the ebbs and flows (2022)
Working Paper: Capital Flows at Risk: Taming the Ebbs and Flows (2019)
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