Capital Flow Waves—Or Ripples? Extreme Capital Flow Movements Since the Crisis

35 Pages Posted: 16 Mar 2020 Last revised: 15 May 2021

See all articles by Kristin J. Forbes

Kristin J. Forbes

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Francis E. Warnock

University of Virginia - Darden Business School; National Bureau of Economic Research (NBER)

Date Written: March 2020

Abstract

Has the occurrence of “extreme capital flow movements”—episodes of sudden surges, stops, flight and retrenchment—changed since the Global Financial Crisis (GFC)? This paper addresses this question by updating and building on the dataset and methodology introduced in Forbes and Warnock (2012) to calculate the occurrence of sharp capital flow movements by foreigners and domestics into and out of individual countries. The results suggest that the occurrence of these extreme capital flow movements has not increased since the GFC. The drivers of these episodes, however, appear to have changed since the GFC. Extreme capital flow movements are less correlated with changes in global risk, and are more difficult to explain with basic global, regional and domestic variables. What used to be large global “waves” in international capital flows have more recently become idiosyncratic “ripples”.

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Suggested Citation

Forbes, Kristin J. and Warnock, Francis E., Capital Flow Waves—Or Ripples? Extreme Capital Flow Movements Since the Crisis (March 2020). NBER Working Paper No. w26851, Available at SSRN: https://ssrn.com/abstract=3554872

Kristin J. Forbes (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

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Francis E. Warnock

University of Virginia - Darden Business School ( email )

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HOME PAGE: http://faculty.darden.virginia.edu/warnockf/index.htm

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