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Media type:
E-Article
Title:
Detecting capital flow surges in developing countries
Contributor:
Kaya, Ahmet Ihsan;
Erden, Lutfi;
Ozkan, Ibrahim
Published:
Wiley, 2022
Published in:
International Journal of Finance & Economics, 27 (2022) 3, Seite 3510-3530
Language:
English
DOI:
10.1002/ijfe.2335
ISSN:
1076-9307;
1099-1158
Origination:
Footnote:
Description:
AbstractThis study investigates excessive movements in capital flows called surges or bonanzas. Contrary to the previous work that extensively uses ad‐hoc measures and discretionary thresholds; we adopt a distinctive methodology to detect capital flow surges based on right‐tailed unit root tests. Generalized supremum augmented Dickey‐Fuller (GSADF) proposed by Phillips et al. (2015) is successfully applied to identify asset price bubbles. Exploiting the technical and conceptual similarities in the formations of asset price bubbles and capital flow surges, we perform the GSADF procedure using quarterly net capital flows data from 43 developing countries. The advantages of this procedure are twofold: it can distinguish the behaviour of volatility and explosiveness and diagnose multiple surges in a series. We identified 727 individual surges, 130 different surge episodes, and 4 global capital flow waves over the periods of 1995–2017. Compared with the existing measures, the application of this surge‐detection technique provides a useful tool as a data‐driven method with no need for discretionary thresholds. We also investigate the factors triggering capital flow surges, employing the Fernandez‐Val and Weidner (2016) bias‐adjusted fixed effects probit model and find that domestic factors play a dominant role on the surge occurrences in developing countries.