How Important is the Global Financial Cycle? Evidence from Capital Flows

Eugenio Cerutti, Stijn Claessens () and Andrew Rose

No 23699, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This study quantifies the importance of a Global Financial Cycle (GFCy) for capital flows. We use capital flow data dis-aggregated by direction and type between 1990Q1 and 2015Q5 for 85 countries, and conventional techniques, models and metrics. Since the GFCy is an unobservable concept, we use two methods to represent it: directly observable variables in center economies often linked to it, such as the VIX, and indirect manifestations, proxied by common dynamic factors extracted from actual capital flows. Our evidence seems mostly inconsistent with a significant and conspicuous GFCy, in that both methods combined rarely explain more than a quarter of the variation in capital flows. Succinctly, most variation in capital flows does not seem to be the result of common shocks nor stem from observables in a central country like the United States.

JEL-codes: F32 F36 F65 G15 (search for similar items in EconPapers)
Date: 2017-08
New Economics Papers: this item is included in nep-opm
Note: IFM
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Citations: View citations in EconPapers (86)

Published as Eugenio Cerutti & Stijn Claessens & Andrew K. Rose, 2019. "How Important is the Global Financial Cycle? Evidence from Capital Flows," IMF Economic Review, vol 67(1), pages 24-60.

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Related works:
Journal Article: How Important is the Global Financial Cycle? Evidence from Capital Flows (2019)
Working Paper: How important is the Global Financial Cycle? Evidence from capital flows (2017)
Working Paper: How Important is the Global Financial Cycle? Evidence from Capital Flows (2017)
Working Paper: How Important is the Global Financial Cycle? Evidence from Capital Flows (2017)
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