Extreme capital flow episodes from the Global Financial Crisis to COVID-19
An exploration with monthly data
The COVID-19 pandemic triggered a sudden funding squeeze manifested in major disruptions
in international capital flows, the most dramatic of the wave of extreme capital flow
episodes since the global financial crisis (GFC). This paper contributes to efforts
to better understand this extreme episode in the context of post-GFC structural financial
changes. To do so, it presents a new monthly dataset of gross capital flows for 41
countries, better suited to the identification of sudden shocks than quarterly Balance
of Payments data. Leveraging on this dataset, the paper first develops a more precise
identification of extreme capital flow episodes since the GFC and revisit their drivers,
asking whether COVID-19 episode significantly changed recent findings of the weaker
role of global factors. The answer is no. Rather, the role of global factors may have
further lost explanatory power in the post-GFC period including COVID. On the other
hand, pull factors such as pre-COVID vulnerabilities and country-specific and pandemic-specific
factors appear key to explaining the identified cross-country heterogeneity.
Published on July 26, 2021
In series:OECD Working Papers on International Investmentview more titles