Year: 2026
Type: article
Abstract: ABSTRACT This paper examines the drivers and impacts of extreme capital flow events in emerging markets, with a focus on distinguishing among flow types (portfolio, bank and FDI) and event categories (surge vs. stop). We find that the global financial cycle drives extreme events in portfolio and bank flows, while FDI is more sensitive to domestic factors. Notably, sudden stops in cross‐border capital flows, particularly in bank and FDI flows, have a greater impact on the overall risk interconnectedness of domestic financial submarkets compared to surge events. We also identify the transmission channels: extreme bank flow events increase credit market net risk spillovers, while concurrent extreme capital flow events heighten foreign exchange market net risk spillovers. Further discussion shows that foreign exchange sales and macroprudential policies mitigate the adverse effects of negative global financial cycle shocks, with macroprudential measures demonstrating stronger effectiveness in the medium term.
Source: International Finance
DOI: 10.1111/infi.70025
Authors: Yang Chen, Yun Feng, Qing Liu
Institution: Shanghai Jiao Tong University
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: bronze
Award: G3228483936
OpenAlex ID: W7128908344