Capital Flows-at-Risk: Push, Pull and the Role of Policy

Abstract

We characterise the probability distribution of capital flows for a panel of emerging market economies conditional on information contained in financial asset prices, with a focus on ‘tail’ events. Our framework, based on the quantile regression methodology, allows for a separate role of push and pull-type factors, and offers insights into the term-structure of these effects. We find that both push and pull factors have heterogeneous effects across the distribution of capital flows, with the strongest reactions in the left tail. Also, the effect of changes in pull factors is more persistent than that of push factors. Finally, we explore the role of policy, and find that macroprudential and capital flow management measures are associated with changes in the distribution of capital flows.

Keywords: Capital flows, sudden stops, capital flight, retrenchment, capital flow surges, push versus pull, capital controls, macroprudential policy, financial conditions indices, quantile regression

JEL Classification: F32, F34, G15