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Capital flow transitions: Domestic factors and episodes of gross capital inflows

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This paper extends existing capital flow literature by considering capital flow episode transitions. Applying a state-transition framework, we view episodes of gross capital inflows as different states in which economies… Click to show full abstract

This paper extends existing capital flow literature by considering capital flow episode transitions. Applying a state-transition framework, we view episodes of gross capital inflows as different states in which economies transition to and from. Abstracting from time-varying common factors by using fixed transitional likelihoods and average values of domestic factors, the findings show that cross-country variation in transitional likelihoods strongly covary with the duration and occurrence and less on idiosyncratic domestic factors. Although the results imply limited scope in backing global cyclical financial flows, this study offers new perspective in understanding cross-country propensities on capital flow transitions.

Keywords: gross capital; capital; episodes gross; capital flow; domestic factors

Journal Title: Emerging Markets Review
Year Published: 2019

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