Gross Inflows Gone Wild : Gross Capital Inflows, Credit Booms and Crises

The main goal of the paper is to examine whether surges in private capital inflows lead to credit booms. The authors built a quarterly database on gross capital inflows, credit to the private sector, and other macro-financial indicators for a sample of 71 countries from 1975q1 to 2010q4. Identifying credit booms is not trivial: they use different criteria implemented in the literature. The estimates suggest that: (i) Surges in gross private capital inflows are overall good predictors of credit booms. (ii) The likelihood of credit booms is higher if the surges in foreign flows are driven by private other investment inflows and, to a lesser extent, portfolio investment inflows. (iii) Surges in gross inflows are also good predictors of credit booms that end up in a financial crisis -- "bad" credit booms. This finding holds even after controlling for the appreciation of the local currency and the build-up of leverage. (iv) Bad credit booms are more likely to occur when surges are driven by other investment inflows. At best, foreign direct investment inflow-driven surges help mitigate the incidence of this type of credit boom. (v) The predictive ability of gross other investment inflows is primarily driven by bank inflows. (vi) Consistent with the literature, the analysis finds that the build-up of leverage and the real overvaluation of the currency help predict credit booms that are followed by a systemic crisis. Controlling for these factors, capital flows are still a significant predictor of credit booms.

Bibliographic Details

Main Authors:	Calderon, Cesar, Kubota, Megumi
Language:	English en_US
Published:	2012-11
Subjects:	ACCOUNTING, ADVANCED ECONOMIES, AMOUNT OF CREDIT, ANNUAL GROWTH, ASSET PRICE, ASSET PRICE BOOMS, ASSET PRICES, BALANCE OF PAYMENTS, BANK DEPOSITS, BANK LENDING, BANK LIQUIDATIONS, BANK LOANS, BANK RESTRUCTURING, BANK RUNS, BANKING CRISIS, BANKING SECTOR, BANKING SYSTEM, BILATERAL TRADE, BOARDS OF DIRECTORS, BONDS, BUSINESS CYCLE, BUSINESS CYCLES, CAPITAL FLOW, CAPITAL FLOWS, CAPITAL INFLOW, CAPITAL INFLOWS, CAPITAL MARKETS, CAPITAL MOBILITY, CENTRAL BANK, CENTRAL BANKS, CLAIM, COMPETITIVENESS, CONSUMER PRICE INDEX, CONSUMPTION SMOOTHING, CONTAINING SYSTEMIC RISKS, CONTROL VARIABLES, CREDIT BOOM, CREDIT BOOMS, CREDIT GROWTH, CREDIT MARKETS, CURRENCY CRISIS, CURRENT ACCOUNT, CURRENT ACCOUNT SURPLUSES, CURRENT ACCOUNTS, CURRENT PRICES, DEBT, DEBT CRISIS, DEBT LIABILITIES, DEBT RATIO, DEFICITS, DEFLATION, DEPENDENT, DEPENDENT VARIABLE, DEPENDENT VARIABLES, DEPOSIT, DERIVATIVES, DEVELOPMENT ECONOMICS, DEVELOPMENT POLICY, DISTORTIONS, DOMESTIC CREDIT, DOMESTIC CURRENCY, DOMESTIC ECONOMY, DOMESTIC FINANCIAL SYSTEM, DOMESTIC FINANCIAL SYSTEMS, DOMESTIC INVESTORS, ECONOMETRIC ANALYSIS, ECONOMETRIC ESTIMATES, ECONOMIC ACTIVITY, ECONOMIC GROWTH, ECONOMIC IMPLICATIONS, ECONOMIC PERFORMANCE, ECONOMIC SYSTEMS, ECONOMIC THEORY, EMERGING ECONOMIES, EMERGING MARKET ECONOMIES, EMERGING MARKETS, EMPIRICAL ANALYSIS, ERROR TERM, EXCHANGE RATE ARRANGEMENT, EXCHANGE RATE ARRANGEMENTS, EXCHANGE RATE FLEXIBILITY, EXCHANGE RATE REGIME, EXPECTED RETURNS, EXPLANATORY VARIABLES, EXTERNAL DEMAND, EXTERNAL SHOCKS, FINANCIAL CORPORATIONS, FINANCIAL CRISES, FINANCIAL CRISIS, FINANCIAL FLOWS, FINANCIAL FRAGILITY, FINANCIAL INDICATORS, FINANCIAL INSTABILITY, FINANCIAL INSTITUTIONS, FINANCIAL INTEGRATION, FINANCIAL INTERMEDIARIES, FINANCIAL MARKETS, FINANCIAL SYSTEMS, FINANCIAL TRANSACTIONS, FISCAL POLICIES, FISCAL POSITIONS, FIXED EFFECTS, FLEXIBLE EXCHANGE RATE, FOREIGN ASSETS, FOREIGN CAPITAL, FOREIGN CURRENCY, FOREIGN DIRECT INVESTMENT, FOREIGN INTEREST RATES, FOREIGN INVESTORS, GDP, GENERAL EQUILIBRIUM, GLOBAL IMBALANCES, GLOBAL LIQUIDITY, GLOBALIZATION, GROWTH RATE, GROWTH RATES, HIGH CAPITAL MOBILITY, HIGH INFLATION, HIGH INFLATION EPISODES, HISTORY OF EXCHANGE RATE, HOUSING, HOUSING PRICES, INCOMPLETE MARKETS, INDUSTRIAL ECONOMIES, INFLATION, INFLATION RATE, INFLEXIBLE EXCHANGE RATE REGIMES, INSURANCE, INSURANCE COMPANIES, INTEREST RATE, INTEREST RATES, INTERNATIONAL CAPITAL FLOWS, INTERNATIONAL COMPETITIVENESS, INTERNATIONAL ECONOMICS, INTERNATIONAL FINANCIAL INTEGRATION, INTERNATIONAL FINANCIAL STATISTICS, INTERNATIONAL MACROECONOMICS, INVESTMENT INFLOW, INVESTMENT INFLOWS, LESS DEVELOPED COUNTRIES, LEVERAGE, LIABILITY, LIQUIDITY, LIQUIDITY SUPPORT, LOAN, LOAN MARKETS, LOCAL CURRENCY, MACROECONOMIC POLICIES, MACROECONOMIC POLICY, MACROECONOMICS, MARKET PARTICIPANTS, MARKET RATE, MISALIGNMENT, MISALIGNMENTS, MONETARY ANCHOR, MONETARY ANCHOR COUNTRY, MONETARY AUTHORITY, MONETARY POLICIES, MONETARY POLICY, MONETARY STABILITY, MONEY MARKET, OVERVALUATION, PENSION FUNDS, PORTFOLIO, PORTFOLIO THEORY, PRIVATE CAPITAL, PRIVATE CREDIT, PRIVATE INFLOWS, RANDOM VARIABLE, RAPID CREDIT EXPANSION, RAPID GROWTH, RATE OF GROWTH, RATE OF INFLATION, REAL APPRECIATION, REAL EXCHANGE RATE, REAL EXCHANGE RATE MISALIGNMENTS, REAL EXCHANGE RATE OVERVALUATION, REAL GDP, REAL INTEREST RATE, RECESSION, REGRESSION ANALYSES, REGRESSION ANALYSIS, REGULATORY FRAMEWORKS, RESERVE ASSETS, RISK AVERSION, RISK PREMIUM, SENSITIVITY ANALYSIS, SLOWDOWN, STANDARD DEVIATION, SYSTEMIC BANKING CRISES, SYSTEMIC BANKING CRISIS, SYSTEMIC CRISIS, TIME DEPOSITS, TRADE CREDIT, TRADE CREDITS, TRADE SHOCKS, TRADING, TRADING PARTNERS, TROUGH, UNCERTAINTY, VOLATILITY, VULNERABILITY, WEALTH, WEIGHTS, WORLD DEVELOPMENT INDICATORS, WORLD ECONOMY, WORLD INTEREST RATE, WORLD INTEREST RATES,
Online Access:	http://documents.worldbank.org/curated/en/2012/11/16974764/gross-inflows-gone-wild-gross-capital-inflows-credit-booms-crises https://hdl.handle.net/10986/12115
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