Capital flow waves—or ripples? Extreme capital flow movements since the crisis

Has the occurrence of “extreme capital flow movements”—episodes of sudden surges, stops, flight and retrenchment—changed since the Global Financial Crisis (GFC)? And was the period at the outset of the Covid Crisis any different? This paper addresses these questions by updating and building on the dataset and methodology introduced in Forbes and Warnock (2012) to calculate the occurrence of sharp capital flow movements by foreigners and domestics into and out of individual countries. The results suggest that the occurrence of these extreme capital flow movements has not increased since the GFC, including during the early phases of the Covid Crisis (the first half of 2020). The drivers of these episodes, however, appear to have changed since the GFC. Extreme capital flow movements are less correlated with changes in global risk and more correlated with changes in oil prices. More generally, what used to be large global “waves” in international capital flows have more recently become more idiosyncratic “ripples”.