Official Financial Flows, Capital Mobility, and Global Imbalances

By Tamim Bayoumi, Joseph E. Gagnon, Christian Saborowski

October 30, 2014

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Tamim Bayoumi, Joseph E. Gagnon, and Christian Saborowski. Official Financial Flows, Capital Mobility, and Global Imbalances, (USA: International Monetary Fund, 2014) accessed December 3, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We use a cross-country panel framework to analyze the effect of net official flows (chiefly foreign exchange intervention) on current accounts. We find that net official flows have a large but plausible effect on current account balances. The estimated effects are larger with instrumental variables (42 cents to the dollar on average compared to 24 without instruments), reflecting a possible downward bias in regressions without instruments owing to an endogenous response of net official flows to private financial flows. We consistently find larger impacts of net official flows when international capital flows are restricted and smaller impacts when capital is highly mobile. A further result is that there is an important positive effect of lagged net official flows on current accounts that we believe operates through the portfolio balance channel.

Subject: Balance of payments, Current account, Current account balance, Current account deficits, Exchange rates, Financial institutions, Foreign exchange, Stocks

Keywords: Asset stock, BOP fin, BOP fin., Capital mobility, Current account, Current account adjustment, Current account balance, Current account deficits, Exchange rates, Financial market, Global, Intervention, Official flow, Reserve accumulation, Stock effect, Stocks, WP

Publication Details

Pages:

45
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2014/199
Stock No:

WPIEA2014199
ISBN:

9781484380239
ISSN:

1018-5941

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