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Episodes of Large Capital Inflows, Banking and Currency Crises, and Sudden Stops
Author(s) -
Furceri Davide,
Guichard Stéphanie,
Rusticelli Elena
Publication year - 2012
Publication title -
international finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.458
H-Index - 39
eISSN - 1468-2362
pISSN - 1367-0271
DOI - 10.1111/j.1468-2362.2012.01296.x
Subject(s) - currency , balance of payments , monetary economics , economics , foreign exchange reserves , sudden stop , capital outflow , portfolio , capital flows , capital (architecture) , currency crisis , portfolio investment , equity (law) , current account , emerging markets , debt , external debt , capital account , exchange rate , macroeconomics , financial capital , finance , capital formation , market economy , liberalization , archaeology , political science , law , history , human capital
Abstract 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.