Official Financial Flows, Capital Mobility, and Global Imbalances

39 Pages Posted: 23 Oct 2014

See all articles by Tamim Bayoumi

Tamim Bayoumi

International Monetary Fund (IMF); Centre for Economic Policy Research (CEPR)

Joseph Gagnon

Peterson Institute

Christian Saborowski

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2014

Abstract

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 with 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.

Keywords: reserve accumulation, intervention, capital mobility

JEL Classification: E5, F3

Suggested Citation

Bayoumi, Tamim and Gagnon, Joseph and Saborowski, Christian, Official Financial Flows, Capital Mobility, and Global Imbalances (October 2014). Peterson Institute for International Economics Working Paper No. 14-8, Available at SSRN: https://ssrn.com/abstract=2513876 or http://dx.doi.org/10.2139/ssrn.2513876

Tamim Bayoumi (Contact Author)

International Monetary Fund (IMF) ( email )

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Centre for Economic Policy Research (CEPR)

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Joseph Gagnon

Peterson Institute ( email )

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Christian Saborowski

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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