Capital flows-at-risk: Push, pull and the role of policy

Abstract

We characterise the probability distributions of various types of gross capital flows conditional on information contained in financial asset prices in a panel of emerging market economies, with a focus on ‘tail’ events. Our framework, based on the quantile regression methodology, allows for a separate role of push- and pull-type factors. We find that both push and pull factors have heterogeneous effects across the distributions of gross capital flows, which are most marked in the left tails. We then explore the role of the pre-existing stance of macroprudential and capital flow management policy in shaping probability distributions of capital flows. Macroprudential and capital flow management measures can both be stabilising, leading to less volatile flows and in particular to lower chances of large portfolio outflows. A tighter macroprudential stance can also reduce the sensitivity of portfolio flows to global financial shocks.