Global Drivers of Gross and Net Capital Flows

50 Pages Posted: 22 Apr 2019

See all articles by Scott Davis

Scott Davis

Federal Reserve Banks - Federal Reserve Bank of Dallas

Giorgio Valente

Hong Kong Monetary Authority - Hong Kong Institute for Monetary Research (HKIMR)

Eric van Wincoop

University of Virginia - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: 2019-03-27

Abstract

While prior to the global financial crisis, the empirical international capital flow literature has focused on net capital flows (the current account), since the crisis there has been an increased focus on gross flows. In this paper we jointly analyze global drivers of gross flows (outflows plus inflows) and net flows (outflows minus inflows) by estimating a latent factor model. We find evidence of two global factors, which we call the GFC (global financial cycle) factor and a commodity price factor as they closely track respectively the Miranda-Agrippino and Rey asset price factor and an average of oil and gas prices. These factors together account for half the variance of gross flows in advanced countries and forty percent of the variance of gross flows in emerging markets. But remarkably, they also account for forty percent of the variance of net capital flows in both groups of countries. We also analyze the heterogeneity across countries in the impact of the two factors. One of the key findings is that the impact of the GFC factor on both gross and net capital flows is stronger in countries that have larger net debt liabilities. Other asset classes (FDI and portfolio equity) do not significantly impact the exposure to the GFC factor.

Keywords: capital inflows and outflows, gross and net capital flows, financial globalization, global financial cycle, global capital flows cycle

JEL Classification: F3, F4

Suggested Citation

Davis, Scott and Valente, Giorgio and van Wincoop, Eric, Global Drivers of Gross and Net Capital Flows (2019-03-27). Globalization and Monetary Policy Institute Working Paper No. 357. Available at SSRN: https://ssrn.com/abstract=3375170 or http://dx.doi.org/10.24149/gwp357

Scott Davis (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

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Dallas, TX 75265-5906
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Giorgio Valente

Hong Kong Monetary Authority - Hong Kong Institute for Monetary Research (HKIMR) ( email )

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Hong Kong
China

Eric Van Wincoop

University of Virginia - Department of Economics ( email )

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Charlottesville, VA 22904-4182
United States
804-924-3997 (Phone)
804-982-2904 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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