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Do International Capital Flows Worsen Macroeconomic Volatility in Transition Economies?

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  • Scott W. Hegerty

Abstract

The 2008 financial crisis helped precipitate a near crisis in the transition economies of Central and Eastern Europe, which ultimately resulted in severe output declines throughout the region. What share of the responsibility did capital movements, particularly “hot money” flows, play in the rapid growth and subsequent recession in the periphery of the European Union? To answer this question, we examine the responses of output, consumption, and investment variability to shocks to both Foreign Direct Investment and non-FDI flows, using quarterly data from the mid-1990s to 2010. Impulse-response and variance decomposition analysis shows that “hot” non-FDI flows contribute more to macroeconomic volatility than do more stable FDI flows, and that certain countries, particularly those with fixed exchange rates, seem to be more vulnerable to shocks than others.

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  • Scott W. Hegerty, 2014. "Do International Capital Flows Worsen Macroeconomic Volatility in Transition Economies?," Bulletin of Applied Economics, Risk Market Journals, vol. 1(1), pages 1-13.
    • Handle: RePEc:rmk:rmkbae:v:1:y:2014:i:1:p:1-13
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    Cited by:

    1. Melis, Michael & Bonga-Bonga, Lumengo, 2019. "Determinants of global capital volatility in the BRICS grouping," MPRA Paper 94125, University Library of Munich, Germany.
    2. Claudiu Tiberiu Albulescu & Nicolae Bogdan Ianc, 2016. "Fiscal Policy, Fdi And Macroeconomic Stabilization," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 18, pages 131-146, December.

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    More about this item

    Keywords

    Capital Inflows; Macroeconomic Volatility; Transition Economies; Vector Autoregression;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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