Extreme Capital Flow Episodes in Emerging Markets: Incidence and Drivers

ABSTRACT We update the dataset on extreme capital flow episodes (surges, stops, flight, and retrenchment), originally constructed by Forbes and Warnock, for 29 emerging markets from 1985 to 2020. We also create new datasets on episodes based on the components of capital flows (portfolio, banking, and foreign direct investment [FDI] flows). Using the datasets, we examine how the incidence and drivers of episodes have changed since the Global Financial Crisis (GFC) and how they differ between the various components of capital flows. We find that although the frequency of episodes has, in general, increased since the GFC, they have become more evenly distributed across time. Since the GFC, episodes have become less sensitive to changes in global risk and global growth and more sensitive to changes in oil prices. Finally, episodes based on portfolio and banking flows are correlated with global and domestic factors, while episodes based on FDI flows are more idiosyncratic.