Capital Flows, Push versus Pull Factors and the Global Financial Crisis

54 Pages Posted: 29 Jul 2011

See all articles by Marcel Fratzscher

Marcel Fratzscher

DIW Berlin; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: July 18, 2011

Abstract

The causes of the 2008 collapse and subsequent surge in global capital flows remain an open and highly controversial issue. Employing a factor model coupled with a dataset of high-frequency portfolio capital flows to 50 economies, the paper finds that common shocks – key crisis events as well as changes to global liquidity and risk – have exerted a large effect on capital flows both in the crisis and in the recovery. However, these effects have been highly heterogeneous across countries, with a large part of this heterogeneity being explained by differences in the quality of domestic institutions, country risk and the strength of domestic macroeconomic fundamentals. Comparing and quantifying these effects shows that common factors (“push” factors) were overall the main drivers of capital flows during the crisis, while country-specific determinants (“pull” factors) have been dominant in accounting for the dynamics of global capital flows in 2009 and 2010, in particular for emerging markets.

Keywords: capital flows, factor model, common shocks, liquidity, risk, push factors, pull factors, emerging markets, advanced economies

JEL Classification: F3, F21, G11

Suggested Citation

Fratzscher, Marcel, Capital Flows, Push versus Pull Factors and the Global Financial Crisis (July 18, 2011). ECB Working Paper No. 1364, Available at SSRN: https://ssrn.com/abstract=1888194 or http://dx.doi.org/10.2139/ssrn.1888194

Marcel Fratzscher (Contact Author)

DIW Berlin ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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