NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Capital Flow Bonanzas: An Encompassing View of the Past and Present

Carmen M. Reinhart, Vincent R. Reinhart

NBER Working Paper No. 14321
Issued in September 2008
NBER Program(s):   IFM

A considerable literature has examined the causes, consequences, and policy responses to surges in international capital flows. A related strand of papers has attempted to catalog current account reversals and capital account "sudden stops." This paper offers an encompassing approach with an algorithm cataloging capital inflow bonanzas in both advanced and emerging economies during 1980-2007 for 181 countries and 1960-2007 for a subset of 66 economies from all regions. In line with earlier studies, global factors, such as commodity prices, international interest rates, and growth in the world's largest economies, have a systematic effect on the global capital flow cycle. Bonanzas are no blessing for advanced or emerging market economies. In the case of the latter, capital inflow bonanzas are associated with a higher likelihood of economic crises (debt defaults, banking, inflation and currency crashes). Bonanzas in developing countries are associated with procyclical fiscal policies and attempts to curb or avoid an exchange rate appreciation -- very likely contributing to economic vulnerability. For the advanced economies, the results are not as stark, but bonanzas are associated with more volatile macroeconomic outcomes for GDP growth, inflation, and the external accounts. Slower economic growth and sustained declines in equity and housing prices follow at the end of the inflow episode.

download in pdf format
   (804 K)

email paper

This paper is available as PDF (804 K) or via email.

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w14321

Published: Capital Flow Bonanzas: An Encompassing View of the Past and Present, Carmen Reinhart, Vincent Reinhart. in NBER International Seminar on Macroeconomics 2008, Frankel and Pissarides. 2009

Users who downloaded this paper also downloaded these:
Magud, Reinhart, and Rogoff w16805 Capital Controls: Myth and Reality - A Portfolio Balance Approach
Forbes and Warnock w17351 Capital Flow Waves: Surges, Stops, Flight, and Retrenchment
Kaminsky, Reinhart, and Vegh When It Rains, It Pours: Procyclical Capital Flows and Macroeconomic Policies
Reinhart and Rogoff w13882 This Time is Different: A Panoramic View of Eight Centuries of Financial Crises
Calvo, Izquierdo, and Mejía w10520 On the Empirics of Sudden Stops: The Relevance of Balance-Sheet Effects
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us