Capital Flows at Risk: Taming the Ebbs and Flows

45 Pages Posted: 23 Jan 2020

See all articles by Gaston Gelos

Gaston Gelos

International Monetary Fund

Lucyna Górnicka

IMF

Robin Koepke

International Monetary Fund (IMF)

Ratna Sahay

International Monetary Fund (IMF) - Developing Country Studies Division; National Bureau of Economic Research (NBER)

Silvia Sgherri

International Monetary Fund (IMF)

Date Written: December 2019

Abstract

The volatility of capital flows to emerging markets continues to pose challenges to policymakers. In this paper, we propose a new framework to answer critical policy questions: What policies and policy frameworks are most effective in dampening sharp capital flow movements in response to global shocks? What are the near- versus medium-term trade-offs of different policies? We tackle these questions using a quantile regression framework to predict the entire future probability distribution of capital flows to emerging markets, based on current domestic structural characteristics, policies, and global financial conditions. This new approach allows policymakers to quantify capital flows risks and evaluate policy tools to mitigate them, thus building the foundation of a risk management framework for capital flows.

Keywords: Economic conditions, Exchange markets, Financial crises, Foreign exchange operations, Capital inflows, Capital flows, macroprudential policies, foreign-exchange intervention, capital controls, emerging markets, WP, policy action, capital flow, structural characteristic, inflow, medium term

JEL Classification: F32, F38, E52, G28, O24, E01, F3, F16, F31

Suggested Citation

Gelos, R. Gaston and Górnicka, Lucyna and Koepke, Robin and Sahay, Ratna and Sgherri, Silvia, Capital Flows at Risk: Taming the Ebbs and Flows (December 2019). IMF Working Paper No. 19/279, Available at SSRN: https://ssrn.com/abstract=3524301

R. Gaston Gelos (Contact Author)

International Monetary Fund ( email )

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

Lucyna Górnicka

IMF ( email )

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

Robin Koepke

International Monetary Fund (IMF) ( email )

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

Ratna Sahay

International Monetary Fund (IMF) - Developing Country Studies Division ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-7181 (Phone)
202-623-7271 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Silvia Sgherri

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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