Gross Capital Flows, Common Factors, and the Global Financial Cycle
This paper assesses the international comovement of gross capital inflows and outflows using a two-level factor model. Among advanced and emerging countries, capital flows exhibit strong commonality: common (global and country group-specific) facto...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2018
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/550301519324136710/Gross-capital-flows-common-factors-and-the-global-financial-cycle http://hdl.handle.net/10986/29414 |
| Summary: | This paper assesses the international
comovement of gross capital inflows and outflows using a
two-level factor model. Among advanced and emerging
countries, capital flows exhibit strong commonality: common
(global and country group-specific) factors account, on
average, for close to half of their variance. There is a
contrast across groups: common factors dominate
advanced-country capital flows, while idiosyncratic factors
dominate emerging- country flows and, especially,
developing-country flows. The reason is the much larger role
of global factors among advanced countries. Importantly,
these findings apply to both inflows and outflows: their
respective common factors are very similar -- although
global factors play a bigger role for outflows than for
inflows. The commonality of flows reflects a global cycle,
summarized by a small set of variables (the VIX, the U.S.
real interest rate and real exchange rate, U.S. GDP growth,
and world commodity prices) that explain much of the
variance of the estimated factors -- especially the global
factors. Over time, the quantitative role of the common
factors exhibits a "globalization" stage up to
2007, during which they acquire growing importance, followed
by a phase of "deglobalization" post-crisis.
Greater financial openness, deeper financial systems, and
more rigid exchange rate regimes amplify countries'
exposure to the global financial cycle. |
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