Stefan Avdjiev, Bryan Hardy, Sebnem Kalemli-Ozcan, Luis Servén, 24 February 2017

Capital flows play a key role in the transmission of real and financial shocks across countries, but empirical work on flows by sector is scarce.  This column uses a newly constructed dataset of capital inflows for 85 countries, broken down by borrowing sector, to show that private debt flows are negatively correlated with global risk appetite, while borrowing by sovereigns is positively correlated with risk appetite. This and other results discussed show the importance of splitting capital inflows into their borrowing sectors when designing policy to manage macrofinancial risk.

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