Emerging Markets Group Workshop on International Capital Flows: Drivers and Policy Responses

The global financial crisis saw an unprecedented collapse of international capital flows after years of rapid increase reflecting the rising globalisation over the previous decade. Global capital flows increased rapidly from less than 7% of world GDP in 1998 to over 20% in 2007, but suffered large reversals in late 2008, with bank credit flows being hit the hardest due to their sensitivity of risk perception. However, the retrenchment of capital flows in emerging economies was short lived compared to that experienced in developed economies (Milesi-Ferretti and Tille, 2011). Capital flows to emerging economies remained highly sensitive to monetary policy in developed economies and subject to bouts of volatility. The tapering by the Fed triggered a new sudden stop in capital flows in 2013, compounded by the stock market turbulence in China in 2015-16. Currently, against the background of low global financial volatility and low yields, non-residents returned to invest in emerging markets in search of higher returns. At the same time the increasing liberalisation of private flows in emerging economies has caused a surge in emerging market capital outflows by residents. This volatility of capital flows has motivated us to organise this workshop in order to deepen our knowledge of the factors that shape the constellation of capital flows to emerging markets, their asset prices and credit cycle, including the range of policies available to face external shocks.

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