Capital Inflow Surges in Emerging Economies: How Worried Should Lac Be?

32 Pages Posted: 19 Sep 2012

See all articles by Andrew Powell

Andrew Powell

Inter-American Development Bank (IDB); Universidad Torcuato Di Tella - School of Business; Harvard University - Center for International Development (CID)

Pilar Tavella

affiliation not provided to SSRN

Date Written: June 2012

Abstract

This paper analyzes capital inflow surges in emerging economies from 1980 to 2005. Estimated probit models are used, which discriminate well between surges associated with banking crises or recessions, and those surges that end without such events. The results indicate that the composition of inflows and the extent of financial reform are significant determinants of outcomes. Estimated models are applied to the Latin American post-2005 inflow surge and find relatively high estimated probabilities for banking crises and recessions. This suggests that recent inflow surges characterized by high portfolio and banking inflows are a potential cause for concern and that the results constitute a prima facie case for macro prudential interventions.

JEL Classification: C25, E44, F34, G01

Suggested Citation

Powell, Andrew P. and Powell, Andrew P. and Tavella, Pilar, Capital Inflow Surges in Emerging Economies: How Worried Should Lac Be? (June 2012). IDB Working Paper No. IDB-WP-326, Available at SSRN: https://ssrn.com/abstract=2149062 or http://dx.doi.org/10.2139/ssrn.2149062

Andrew P. Powell (Contact Author)

Inter-American Development Bank (IDB) ( email )

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Universidad Torcuato Di Tella - School of Business ( email )

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Argentina
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Harvard University - Center for International Development (CID) ( email )

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Cambridge, MA 02138
United States

Pilar Tavella

affiliation not provided to SSRN

No Address Available

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