Capital Flows at Risk: Taming the Ebbs and Flows

By Gaston Gelos, Lucyna Gornicka, Robin Koepke, Ratna Sahay, Silvia Sgherri

December 20, 2019

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Gaston Gelos, Lucyna Gornicka, Robin Koepke, Ratna Sahay, and Silvia Sgherri. Capital Flows at Risk: Taming the Ebbs and Flows, (USA: International Monetary Fund, 2019) accessed November 19, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

The volatility of capital flows to emerging markets continues to pose challenges to policymakers. In this paper, we propose a new framework to answer critical policy questions: What policies and policy frameworks are most effective in dampening sharp capital flow movements in response to global shocks? What are the near- versus medium-term trade-offs of different policies? We tackle these questions using a quantile regression framework to predict the entire future probability distribution of capital flows to emerging markets, based on current domestic structural characteristics, policies, and global financial conditions. This new approach allows policymakers to quantify capital flows risks and evaluate policy tools to mitigate them, thus building the foundation of a risk management framework for capital flows.

Subject: Balance of payments, Capital account, Capital flow management, Capital flows, Emerging and frontier financial markets, Exchange rate arrangements, Financial markets, Foreign exchange

Keywords: Bbb yield, Capital controls, Capital flow, Capital flow management, Capital flow measure, Capital flow risk, Capital flow volatility, Capital flows, Capital flows data, Capital withdrawal, Emerging and frontier financial markets, Emerging markets, Exchange rate arrangements, Flow risk, Flows data, Flows to emerging markets, Foreign-exchange intervention, FX intervention, Global, Macroprudential policies, Portfolio, Portfolio inflow, Risks to capital flow, WP

Publication Details

Pages:

44
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/279
Stock No:

WPIEA2019279
ISBN:

9781513522906
ISSN:

1018-5941

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