Swept by the Tide? The International Comovement of Capital Flows
This paper assesses the international comovement of gross capital flows in a setting simultaneously encompassing aggregate inflows and outflows. It uses as empirical framework a multilevel latent factor model, implemented on flow data for a large s...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2019
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/746291553173487580/Swept-by-the-Tide-The-International-Comovement-of-Capital-Flows http://hdl.handle.net/10986/31446 |
| Summary: | This paper assesses the international
comovement of gross capital flows in a setting
simultaneously encompassing aggregate inflows and outflows.
It uses as empirical framework a multilevel latent factor
model, implemented on flow data for a large sample of
countries over more than three decades. On average, common
shocks account for over 40 percent of the variance of both
inflows and outflows, although with major differences
between advanced countries and the rest. Among the former,
global and group shocks dominate capital flows, and the same
shocks drive gross inflows and outflows. Among the latter
countries, idiosyncratic shocks tend to play the leading
role, and gross inflows exhibit less commonality with
outflows. The latent factors configure an international
financial cycle that closely tracks the trends in a handful
of global "push" variables. Recursive estimation
of the factor model reveals a rising trend in the exposure
of countries' flows to the international
cycle—especially for advanced economies—up to the global
financial crisis. Exposure to the cycle is robustly related
to countries' external financial openness and the (lack
of) flexibility of their exchange rate regime. |
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