Global external imbalances widened persistently over the last several years and have narrowed abruptly over the course of the financial crisis. Understanding the extent to which structural or cyclical factors may have driven these patterns is important to assess the likely evolution of global imbalances going forward, as well as the potential adjustment that can be achieved through changes in policy. This paper assesses the link between structural and cyclical factors and current account balances using a panel of 94 countries from 1973 to 2008. We find that the medium-term evolution of global external imbalances can be related in large part to structural factors including cross-country differences in demographics, fiscal deficits, oil dependency and intensity, stage of economic development, financial market development, and institutional quality. Part of the narrowing in current account balances since the financial crisis appears to be related to various cyclical factors including changes in output growth, oil prices, and exchange rates, and may be expected to reverse alongside the economic recovery.
This paper empirically investigates the relationship between surges in capital inflows and the probability of subsequent banking, currency and balance‐of‐payment crises. Using a panel of developed and emerging economies from 1970 to 2007, it shows that a large capital inflow episode increases substantially the probability of having a banking or a currency crisis in the two following years. The effect is especially large for the case of balance‐of‐payment crises. The paper also finds that the effect of large capital inflows is different depending on the type of flows characterizing the episode. In particular, large capital inflows that are debt driven significantly increase the probability of banking, currency and balance‐of‐payment crises, whereas inflows that are driven by equity portfolio investment or foreign direct investment have a negligible effect.
for their helpful comments. We are very grateful to Alberto F. Borrallo and Marina Conesa for their excellent research assistance.The views of this paper are those of the authors and do not represent the view of the OECD, the Banco de España, the European Central Bank, or the Eurosystem. No part of our compensation was, is or will be directly or indirectly related to the specific views expressed in this paper.
This paper analyses the effect of capital inflow surges on the evolution of domestic credit. Using a panel of developed and emerging economies from 1970 to 2007, it is shown that in the two years following the beginning of a capital inflow surge the credit-to-GDP ratio increases by about 2 percentage points. The effect is reversed in the medium-term with the credit-to-GDP ratio decreased by almost 4 percentage points seven years after the initial surge. The paper also finds that the effect is different depending on the type of flows characterising the episode (debt vs. portfolio equity vs. FDI), with large capital inflows that are debt-driven having the largest effect. The results of the paper also suggest that the short-term effect of capital inflow surges on domestic credit depends on countries’ macroeconomic policy stances. In particular, it is found that this effect is lower in countries with higher real exchange rate flexibility and fiscal policy counter-cyclicality
This paper provides an empirical investigation of the medium-term determinants of international investment positions for a large sample of advanced and emerging economies. In addition to the usually considered drivers offoreign assets and liabilities, the analysis focuses on the role of structural policy indicators. Using cross-section and panel regression techniques the results suggest that structural policy settings are important medium-term drivers of capital flows, having a relatively large impact on gross and net foreign capital positions and on their composition. In particular, the results suggest that certain kinds of structural policy reform could help to narrow global imbalances, and to modify the composition of international capital flows towards more stable and productive sources
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