Has the unprecedented financial globalisation of recent years changed the behaviour of capital flows across countries? Using a newly constructed database of gross and net capital flows since 1980 for a sample of nearly 150 countries, the IMF Working Paper Capital Flows are Fickle: Anytime, Anywhere finds that private capital flows are typically volatile for all countries, advanced or emerging, across all points in time. This holds true across most types of flows, including bank, portfolio debt, and equity flows. Advanced economies enjoy a greater substitutability between types of inflows, and complementarity between gross inflows and outflows, than do emerging markets, which reduces the volatility of their total net inflows despite higher volatility of the components.
Capital flows also exhibit low persistence, across all economies and across most types of flows. Inflows tend to rise temporarily when global financing conditions are relatively easy. These findings suggest that fickle capital flows are an unavoidable fact of life to which policymakers across all countries need to continue to manage and adapt.
John Bluedorn, Rupa Duttagupta, Jaime Guajardo & Petia Topalova.
The views expressed in the Working Paper are those of the authors and do not necessarily represent those of the IMF or IMF policy