Publication: Gross Inflows Gone Wild : Gross Capital Inflows, Credit Booms and Crises
Date
2012-11
ISSN
Published
2012-11
Author(s)
Calderon, Cesar
Kubota, Megumi
Abstract
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.
Citation
“Calderon, Cesar; Kubota, Megumi. 2012. Gross Inflows Gone Wild : Gross Capital Inflows, Credit Booms and Crises. Policy Research Working Paper; No. 6270. © http://openknowledge.worldbank.org/handle/10986/12115?show=full License: CC BY 3.0 IGO.”
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