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The great moderation in international capital flows: A global phenomenon?

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  • McQuade, Peter
  • Schmitz, Martin
Abstract
This paper highlights a recent ‘great moderation’ in global capital flows, characterised by smaller volumes and lower volatility of cross-border transactions. However, there are substantial differences across countries and regions which we analyse by comparing the level of international capital flows observed in 2005–06, immediately prior to the onset of the global financial crisis, to the post-crisis period of 2013–14, when global flows arguably settled at a ‘new normal’. We find that since the pre-crisis period, gross capital inflows recovered more for economies with smaller pre-crisis external and internal imbalances, lower per capita income, improving growth expectations, a less severe impact of the global financial crisis and less stringent macroprudential policy. On the asset side, countries with a more accommodative monetary policy, a milder impact of the crisis and oil exporters managed to increase gross capital outflows in the post-crisis period.

Suggested Citation

  • McQuade, Peter & Schmitz, Martin, 2017. "The great moderation in international capital flows: A global phenomenon?," Journal of International Money and Finance, Elsevier, vol. 73(PA), pages 188-212.
    • Handle: RePEc:eee:jimfin:v:73:y:2017:i:pa:p:188-212
    DOI: 10.1016/j.jimonfin.2017.02.027
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    More about this item

    Keywords

    International capital flows; Global financial crisis; External imbalances; Monetary policy; Macroprudential policy;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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