Which Net Capital Flows Matter?

ABSTRACT

This article classifies extreme net capital flow episodes into four types and analyzes the macroeconomic impacts of each type. First, we find that all types of episodes increased drastically in the 2000s relative to previous years. Second, we conclude that liability-flow-driven episodes have more significant macroeconomic impacts than do asset-flow-driven episodes. Third, we show that only drastic positive net capital flows that were driven by liability flows were associated with a higher probability of banking crises in the 2000s. The results suggest that the detailed classification of extreme net capital flows provides insight into these movements’ macroeconomic impacts and policy implementations.

KEY WORDS:

• Banking crises
• capital flows
• sudden stops
• surges

Funding

This work was supported by the National Research Foundation of Korea (NRF) Grant funded by the Korean Government (Ministry of Science, ICT and Future Planning) (No. NRF-2013R1A1A1076066).

Additional information

Funding

This work was supported by the National Research Foundation of Korea (NRF) Grant funded by the Korean Government (Ministry of Science, ICT and Future Planning) (No. NRF-2013R1A1A1076066).