Surges

43 Pages Posted: 2 Feb 2012

See all articles by Juan Zalduendo

Juan Zalduendo

World Bank

Jun Il Kim

International Monetary Fund (IMF)

Mahvash Saeed Qureshi

International Monetary Fund (IMF) - Research Department

Atish R. Ghosh

International Monetary Fund (IMF) - Policy Development and Review Department

Date Written: January 2012

Abstract

This paper examines why surges in capital flows to emerging market economies (EMEs) occur, and what determines the allocation of capital across countries during such surge episodes. We use two different methodologies to identify surges in EMEs over 1980-2009, differentiating between those mainly caused by changes in the country's external liabilities (reflecting the investment decisions of foreigners), and those caused by changes in its assets (reflecting the decisions of residents). Global factors-including US interest rates and risk aversion¡-are key to determining whether a surge will occur, but domestic factors such as the country's external financing needs (as implied by an intertemporal optimizing model of the current account) and structural characteristics also matter, which explains why not all EMEs experience surges. Conditional on a surge occurring, moreover, the magnitude of the capital inflow depends largely on domestic factors including the country's external financing needs, and the exchange rate regime. Finally, while similar factors explain asset- and liability-driven surges, the latter are more sensitive to global factors and contagion.

Keywords: Surges, Capital Flows, Emerging Market Economies, Developing Countries, Economic Models

JEL Classification: F21, F32

Suggested Citation

Zalduendo, Juan and Kim, Jun Il and Qureshi, Mahvash Saeed and Ghosh, Atish R., Surges (January 2012). IMF Working Paper No. NO.12/22, Available at SSRN: https://ssrn.com/abstract=1997735

Juan Zalduendo (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Jun Il Kim

International Monetary Fund (IMF) ( email )

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

Mahvash Saeed Qureshi

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Atish R. Ghosh

International Monetary Fund (IMF) - Policy Development and Review Department ( email )

700 19th St. NW
Washington, DC 20431
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
92
Abstract Views
1,061
Rank
506,051
PlumX Metrics