BIS: Gross capital flows by banks, corporates and sovereigns

04 December 2018

Authors construct a new data set, in which they break down gross capital flows by sector (banks, corporates and sovereigns). Using this data set, they show that the properties and drivers of capital flows vary considerably across sectors, instruments and country groups.

International capital flows can have a significant impact on macroeconomic outcomes. Thus, understanding their properties and drivers is of crucial importance.

A number of studies have examined aggregate capital flows from various angles. Yet, the existing literature on gross capital flows has largely ignored their sectoral composition.

This important gap is due mainly to the scarcity of data on gross capital flows, broken down by sector.

Authors document four new empirical facts:

• First, banks in advanced economies are responsible for the high correlation between capital inflows and outflows.
• Second, the private sector is the main driver of the procyclicality of capital inflows. By contrast, inflows to emerging market sovereigns move countercyclically.
• Third, advanced economy banks and emerging market sovereigns drive the procyclicality of capital outflows.
• Fourth, when global risk aversion is high, private sector flows decline, while sovereign flows show no significant response.

Working paper

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