Discussion paper

DP15842 Capital Flows at Risk: Taming the Ebbs and Flows

The volatility of capital flows to emerging markets continues to pose challenges to policymakers. In this paper, we propose a new quantile regression framework to predict the entire future probability distribution of capital flows to emerging markets, based on changes in global financial conditions, domestic structural characteristics, and policies. The approach allows us to differentiate between short- and medium-term effects. We find that FX- and macroprudential interventions are effective in mitigating downside risks to portfolio flows stemming from adverse global shocks, while tightening of capital controls in response appears to be counterproductive. Good institutional frameworks are not able to shield countries from the increased volatility of portfolio flows in the immediate aftermath of global shocks. However, they do contribute to a more rapid bounce-back of foreign flows over the medium term.


Gelos, G, L Gornicka, R Koepke, R Sahay and S Sgherri (2021), ‘DP15842 Capital Flows at Risk: Taming the Ebbs and Flows‘, CEPR Discussion Paper No. 15842. CEPR Press, Paris & London. https://cepr.org/publications/dp15842