ArticleDetail Upload Article

Title: Capital Flow Volatility and Contagion: A Focus on Asia

Article Text:

Abstract:
This paper documents four trends in Asia: (1) the increase in the magnitude of gross capital inflows and outflows; (2) the larger magnitude of gross capital inflows relative to outflows in some countries; (3) the increase in the volatility of these capital flows; and (4) the steady increase in the comovement between equity markets over time. It then uses results from recent academic research to evaluate ways in which Asian economies can best mitigate risks from large and volatile capital flows. The analysis suggests that the best approach involves attention to the form of these capital flows and strengthening the domestic financial system rather than directly reducing total capital flows. For example, supporting capital flows in the form of equity, instead of debt, provides natural risk sharing and reduces domestic vulnerabilities. Supporting outward capital flows by domestic investors can provide an important form of stability, as domestic investors often “retrench” and bring money invested abroad home during periods of heightened risk. Finally, one of the most potent methods to stabilize economies against capital flow volatility is to reduce leverage in domestic banking systems. Recent increases in leverage in Asian banking systems suggest that this could be a source of increased vulnerability in the future.

Download the full paper: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2185011

Comments (0):

  • Become the first member to comment on this media.
Log in or join the community to leave a comment.

Media Information

Capital Flow Volatility and Contagion: A Focus on Asia

Date Added: April 02, 2013 10:01 AM

Uploaded By: MIT A.

Views: 0

Flag Media as Inappropriate

Get Involved

Add to Favorites

Bookmark and Share

Add a Comment

  • Rate:

Votes: 0

Tags:

Spaces separate tags and double quotes create multi-word tags (e.g. "lecture series" education "must see").
Each tag cannot be more than 30 characters long.
Tags cannot include special characters, only letters, numbers, and spaces.