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2018 | OriginalPaper | Buchkapitel

International Financial Flows in the New Normal: Key Patterns (and Why We Should Care)

verfasst von : Matthieu Bussière, Julia Schmidt, Natacha Valla

Erschienen in: International Macroeconomics in the Wake of the Global Financial Crisis

Verlag: Springer International Publishing

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Abstract

This chapter documents recent trends in international financial flows, based on a newly assembled dataset covering 40 advanced and emerging countries. Specifically, we compare the period since 2012 with the pre-crisis period and highlight three key stylized facts. First, the “Great Retrenchment” that took place during the crisis has proved very persistent, and world financial flows are now down to half their pre-crisis levels. Second, this fall can be related predominantly to advanced economies, especially those in Western Europe, while emerging markets, except Eastern European countries, have been less severely affected until recently. Third, not all types of flows have shown the same degree of resilience, resulting in a profound change in the composition of international financial flows: while banking flows, which used to account for the largest share of the total before 2008, have collapsed, foreign direct investment flows have been barely affected and now represent about half of global flows. Portfolio flows stand between these two extremes, and within them equity flows have proved more robust than debt flows. This should help to strengthen resilience and deliver genuine cross-border risk-sharing. Having highlighted these stylized facts, this chapter turns to possible explanations for and likely implications of these changes, regarding international financial stability issues.

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Vorheriges Kapitel The Nature of the Shock Matters: Some Model-Based Results on the Macroeconomic Effects of Exchange Rate

Nächstes Kapitel International Spillovers of Non-standard Monetary Policy: Evidence From Central and Eastern Europe

These countries are: Argentina, Australia, Austria, Belgium, Brazil, Canada, Chile, China, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, India, Indonesia, Ireland, Israel, Italy, Japan, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Russia, South Africa, South Korea, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey, United Kingdom and the United States. The aggregate flows reported in Sects. 2 and 3 below are based on individual Euro area countries, thus taking into account intra-Euro area flows.

We define the pre-crisis period as 2005Q1–2007Q2 (2005 is the first year of the IMF BPM6 database). Taking this period as benchmark should not be interpreted in a normative way, especially given that this period was likely characterized by exceptional buoyancy of capital flows.

International trade flows appear very weak compared to pre-crisis levels, which in itself is not very surprising given that economic activity is also less robust. More strikingly, global trade, which used to increase at twice the pace of global GDP, is now growing at roughly the same pace, suggesting that the relation between trade and GDP has changed, owing to a combination of cyclical and structural factors, as outlined in Hoekman (2015).

We consider here gross outflows (i.e. net purchases of foreign assets by domestic residents), and gross inflows (i.e. net purchases of domestic assets by foreign residents). As a result, gross flows may become negative. For instance, if foreign residents sell domestic assets massively, this will result in negative gross inflows.

Conventional wisdom states that FDI flows represent a more stable source of external financing compared to portfolio and bank flows (in addition to other benefits, including the technology transfers they may entail); see e.g. Levchenko and Mauro (2007) or Albuquerque (2003). However, the extent to which they are indeed more stable is debated; see, for instance, Brukoff and Rother (2007), Bluedorn et al. (2013) and the references cited therein. The relative stability of different types of capital flows has crucial implications for capital account openness and in particular its sequencing (see e.g. Kaminsky and Schmukler 2003, or Bussière and Fratzscher 2008).

These papers take mostly an empirical approach; see Tille and Van Wincoop (2010) for a theoretical view.

We do not touch upon the issue of capital controls and other tools aimed at managing international capital flows. Interested readers may check IMF (2012), Ostry et al. (2011, 2012), Pasricha et al. (2015), Forbes et al. (2015a), as well as the references therein.

In this section and in the rest of the paper (except where otherwise indicated), we use quarterly data from the IMF BoP Statistics, which start in 2005.

The difference partly reflects the fact that several advanced economies, like the UK and Luxembourg, are financial hubs, such that flows to and from these centers are hard to attribute to specific countries. In addition, advanced economies comprise the Euro area where cross-border financial integration is particularly high.

In this section we focus on international capital outflows. In principle, the data should match the data series for inflows at the world level. However, due to statistical errors and since our database does not include all countries in the world, global outflows and inflows do not match exactly. In spite of these discrepancies, the data for global inflows lead to the same conclusions, in terms of which flows have been the most resilient. Another challenge is that not all countries report the split between debt and equity in the “portfolio” category, or at least not since 2005. To provide a meaningful comparison, we have therefore split Figs. 5 and 6 in two, showing first the broad “portfolio” category for the whole sample, and then the debt/equity split for the restricted sample of countries, losing in the process Argentina, China, India, Mexico and Turkey. We also omitted Saudi Arabia for data availability reasons related to other investment flows.

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Titel: International Financial Flows in the New Normal: Key Patterns (and Why We Should Care)
verfasst von: Matthieu Bussière
Julia Schmidt
Natacha Valla
Verlag: Springer International Publishing
Buch: International Macroeconomics in the Wake of the Global Financial Crisis
Print ISBN: 978-3-319-79074-9

Electronic ISBN: 978-3-319-79075-6

Copyright-Jahr: 2018
DOI: https://doi.org/10.1007/978-3-319-79075-6_13