Reinout De Bock, Dimitris Drakopoulos, Rohit Goel, CFA, Lucyna Gornicka, Evan Papageorgiou, Patrick Schneider, Can Sever, 19 August 2020

The COVID-19 pandemic caused an unprecedented sharp reversal of portfolio flows in emerging and frontier markets, triggering concerns about financial stability and consequently, strong policy responses. This column uses a novel analytical framework, the capital-flows-at-risk methodology, to show that changes in global financial conditions tend to influence portfolio flows more during surges and reversals than in normal times. Furthermore, stronger domestic fundamentals do not necessarily lead to surges in portfolio flows but help mitigate outflows. Hence, the weaker growth outlook for emerging markets due to COVID-19 will worsen local currency flows, while global financial conditions will affect hard currency flows.

John D. Burger, Francis Warnock, Veronica Cacdac Warnock, 26 September 2018

Analyses of capital flows often compare flows in a recent period to flows in some past period. But what level of capital flows should be characterised as ‘normal’? This column suggests there is a natural rate of portfolio flows, a longer-term baseline path around which actual flows fluctuate. The natural rate of portfolio flows allows observers to distinguish between movements toward the benchmark (back to ‘normal’) and movements away from the benchmark, which should be short-lived.

Maurizio Michael Habib, Livio Stracca, 28 February 2014

At the peak of the Global Crisis, the US dollar appreciated and US Treasury yields fell, suggesting that foreign investors were purchasing US assets in general. Actually, they were fleeing only into short-term Treasury bills. This column discusses recent research showing that there are indeed no securities which are consistently a safe haven across different crisis episodes – not even US assets. However, a peculiarity of the US securities is that foreign investors do not necessarily ‘run for the exit’, even when a crisis has its epicentre in the US.


CEPR Policy Research