Capital Flows Volatility and the Macroeconomic Performance – Evidence from Emerging and Developing Economies
Capital Flows Volatility and the Macroeconomic Performance – Evidence from Emerging and Developing Economies

Author(s): Jasna Tonovska, Predrag Trpeski
Subject(s): Social Sciences, Economy
Published by: Udruženje ekonomista i menadžera Balkana
Keywords: Capital flows volatility; Macroprudential policy measures; Economic growth
Summary/Abstract: Volatile capital flows pose serious risks to economic growth and financial stability. This paper investigates the link between economic performance and gross capital flows volatility in emerging market and developing economies (EMDE), and specifically, the extent to which macroprudential policy measures can diminish the detrimental effects of capital flows volatility on growth. For that purpose, we start by constructing volatility estimates for gross capital flows and their subcomponents on a sample of 37 EMDEs, following the methodology by Wang (2019). Then we perform panel regression over the period 2000-2018 incorporating the main variables of interest: economic growth, gross capital inflows volatility and macroprudential policy. The results show that the negative effect of gross capital inflows volatility on growth is significantly mitigated by the implementation of macroprudential policy measures. The results are robust against reverse causality and omitted variables bias.

• Details
• Contents