Paper #862

Título:

Why are capital flows so much more volatile in emerging than in developed countries?

Autores:

Fernando Broner y Roberto Rigobon

Fecha:

Octubre 2004

Resumen:

The standard deviations of capital flows to emerging countries are 80 percent higher than those to developed countries. First, we show that very little of this difference can be explained by more volatile fundamentals or by higher sensitivity to fundamentals. Second, we show that most of the difference in volatility can be accounted for by three characteristics of capital flows: (i) capital flows to emerging countries are more subject to occasional large negative shocks (�crises�) than those to developed countries, (ii) shocks are subject to contagion, and (iii) � the most important one � shocks to capital flows to emerging countries are more persistent than those to developed countries. Finally, we study a number of country characteristics to determine which are most associated with capital flow volatility. Our results suggest that underdevelopment of domestic financial markets, weak institutions, and low income per capita, are all associated with capital flow volatility.

Palabras clave:

Capital flows, emerging countries, volatility, crises, contagion, persistence

Códigos JEL:

F21, F32, F37, G15

Área de investigación:

Macroeconomía y Economía Internacional

Publicado en:

External Financial Vulnerability and Preventive Policies. R. Caballero, C. Calderón, and L. Céspedes (eds.). Eighth Annual Conference of the Central Bank of Chile, 2006

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